EBF 301
Global Finance for the Earth, Energy, and Materials Industries

Reading Assignment: Lesson 4

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Reading Assignment:

Errera & Brown - Chapter 3

Key Points of Emphasis:

  • Futures markets are very efficient due to a highly competitive environment.
  • Financial commodity prices approximate the true value of the underlying commodity.
  • Parallelism recognizes the fact that both financial and physical markets are influenced by similar things.
  • Convergence is the tendency for the financial contract to approach the value of the physical commodity as it approaches settlement.
  • Speculative Traders use both fundamental and technical analysis in making buy/sell decisions.
  • Arbitrage is the act of taking advantage of price differences.
  • Basis represents the difference in price between financial and physical markets. Locational Basis is the value between the financial commodity contract delivery point and other cash points.