Describe in your own words what is the relation between the Forward price of oil and...

Describe in your own words what is the relation between the Forward price of oil and the cost of storage. Besides providing the basic relation (increasing, decreasing, independent), please provide the economic reasoning. You are greatly encouraged to provide any graphical representation that might help convey the idea. Maximum 200 words. Please write as clear as possible.

Solutions

Expert Solution

the forward price of a commodity is decided on the assumption of zero arbitrage principle , the principle stand true for oil pricing as well. The forward price of a commodity is work on the concept of cost and carry model .

Cost of carry alludes to expenses related with the conveying estimation of a speculation. These expenses can incorporate money related costs, for example, the premium expenses on securities, premium costs on edge accounts, enthusiasm on advances used to make a venture, and any capacity costs associated with holding a physical resource.

Cost of carry may likewise incorporate open door expenses related with taking one situation over another. In the subordinates markets, cost of carry is a significant factor for thought when producing qualities related with a benefit's future cost.

Forward price = current price +carry cost.

it means , higher the carry cost higher would be forward price of oil.

jeff jeffy answered 1 month ago

Next > < Previous

Related Solutions

In your own words, explain the critical differences between the forward, the futures, and the options...

In your own words, explain the critical differences between the forward, the futures, and the options markets. What advantages does a futures market offer that is not available in a forward market? What advantages does a forward market offer that is not available in a futures market? What advantages does an options market offer over a forward or a futures market?

Anwser in your own words Describe in your own words, what should be included in health...

Anwser in your own words Describe in your own words, what should be included in health record documentation best practices. Provide at least one example of how HIM's ensure these best practices are met.

In your own words, describe the DIKW hierarchy. 1. What is the difference between data and...

In your own words, describe the DIKW hierarchy. 1. What is the difference between data and information? Give an example. 2. What is the difference between information and knowledge? Give an example. 3. What is the difference between knowledge and wisdom? Give an example. How do you see the DIKW hierarchy influencing public health? How is health informatics involved in this process?

1. Describe in your own words the structure of DNA. 2. Describe in your own words...

1. Describe in your own words the structure of DNA. 2. Describe in your own words how DNA makes copies of itself. (I.e. Describe DNA replication.). Protein synthesis involves two processes, transcription and translation. Describe in your own words how each process occurs. Transcription Translation

In your own words, describe what is the Universal Declaration of Human Rights. In your own...

In your own words, describe what is the Universal Declaration of Human Rights. In your own words, list and describe at least three implications on health as a result of migration. please.don't copy and paste

Describe the relation between the yield curve of spot rates and the yield curve of forward...

Describe the relation between the yield curve of spot rates and the yield curve of forward rates. Besides providing the basic relation (increasing, decreasing, independent), please provide the economic reasoning. You are greatly encouraged to provide any graphical representation that might help convey the idea. Maximum 200 words. Please write as clear as possible.

In your own words, explain the difference between price ceilings and price floors. Why would an...

In your own words, explain the difference between price ceilings and price floors. Why would an economy use them? Who is hurt by each one and why? Who is helped by each one and why? Why would the government support price ceilings and price floors knowing that they are inefficient? What might they be trying to accomplish?

Question