Question

In August 2019, U.S. corn futures hit a three-month low after China said it would impose additional tariffs on U.S. grain products. Suppose the tariffs are believed to be a temporary trade policy. How do you think news of the tariffs would impact the implied convenience yield between short and long-maturity corn futures prices?

The convenience yield would fall (i.e., less positive, more negative).

The convenience yield would remain the same, but the level of the curve would shift upwards.

The convenience yield would remain the same, but the level of the curve would shift downwards.

The convenience yield would rise (i.e., more positive, less negative).

Answer 1

In this case, the convenient yield will be remaining same but the level of the curve will be shifting downward as it is a temporary trade policy but the effect will be negative and it will be leading to convenience yield shifting downward.

All the other options are false.

Correct answer will be option ( C) convenience yield would remain the same but the level of the curve would shift downward.