2016-FRR Exam Dumps | To estimate the forward price of oil, a commodity trader would most likely use the following pricing

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GARP.2016-FRR.v2024-09-09.q145
Question 120

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Question 120/145

To estimate the forward price of oil, a commodity trader would most likely use the following pricing relationship:

A. Oil forward price = Expected future oil price ± Oil market risk premium

B. Oil forward price = Expected future oil price ± storage cost + Oil market risk premium

C. Oil forward price = Expected future oil price ± Oil storage cost + (1 + Oil market risk premium)

D. Oil forward price = Expected future oil price ± Oil storage cost + (1 - Oil market risk premium)

Correct Answer: A

* The forward price of a commodity like oil is typically determined by the expected future spot price and adjusted for the risk premium associated with the market.
* Storage costs are often considered separately and are not typically included in the forward pricing
* relationship in the simple form as given in option A.
* Therefore, the most straightforward and likely answer based on common financial theory is the expected future oil price adjusted by the market risk premium.

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