Hi guys,
Could someone help me with the question below and with the concept of commodity index returns?
Which of the following is least likely to be directly reflected in the returns on a commodity index?
A. Roll yield
B.Risk free rate
C.Changes in the underlying commodity price.
Correct answer is C.
Could somebody explain me the concept, please .
My understanding is because a commodity index does not invest directly in the physical commodity as it would be difficult for an index to hold a physical asset. Commodity indices are typically based on spot or futures prices which can vary from the physical price of an asset.
Because the variation in the prices of commodities explain a lot the inflation rate period to period. So practically, the change in prices of commodities are indirectly reflected in the commodities index return.