GSC ABC School: Merchandising

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1. The cost of carry is the cost for a grain elevator to take ownership of grain inventory and hold it.

Explanation

The cost of carry refers to the expenses incurred by a grain elevator to acquire and store grain inventory. This includes costs such as storage, handling, insurance, and financing. By taking ownership of the grain, the elevator assumes responsibility for these costs. Therefore, the statement that the cost of carry is the cost for a grain elevator to take ownership of grain inventory and hold it is true.

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GSC ABC School:  Merchandising - Quiz

Explore key concepts in grain trading with the GSC ABC School: Merchandising quiz. Master how margins can be improved, understand the cost of carry, and calculate real-world scenarios... see moreto enhance your financial acumen in commodity markets. see less

2. Which of the following is the correct Cost-To-Carry formula?

Explanation

The correct Cost-To-Carry formula is (Value X Interest Rate)/360 X Time(days). This formula calculates the cost of carrying an asset based on its value, interest rate, and time period. It multiplies the value of the asset by the interest rate, then divides by 360 (the number of days in a year) and finally multiplies by the time period in days. This formula takes into account the value of the asset, the interest rate, and the duration of time, providing an accurate calculation of the cost to carry the asset.

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3. Which of the following choices could help to increase your margins on grain sales?

Explanation

Selling in volume means selling a large quantity of grains, which can help increase margins as it allows for economies of scale and reduces per-unit costs. Pricing in volume means offering discounts or incentives for customers who purchase larger quantities, which can also help increase margins by encouraging higher sales volumes. Pricing by futures exchange/VS cash refers to using futures contracts to hedge against price fluctuations, which can help protect margins by locking in a certain price for future sales. Therefore, all of these choices can potentially help increase margins on grain sales.

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4. If value equals $4.50, the interest rate is 8%, and time of ownership is 60 days, what is the cost of carry?

Explanation

The cost of carry is calculated by multiplying the value by the interest rate and dividing by the number of days in a year. In this case, the value is $4.50, the interest rate is 8%, and the time of ownership is 60 days. Therefore, the cost of carry would be (4.50 * 0.08) / 365 = 0.0098. Rounded to the nearest cent, the cost of carry is 0.01 dollars per bushel, which is equal to 0.06 dollars per bushel.

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5. If the premium to futures charge is 4 cents, and freight from Chicago to the New Orleans area is around 30 cents, what will the delivery value equivalent of grain delivered be? This number is sometimes called "freight off delivery"

Explanation

The delivery value equivalent of the grain delivered will be 34 cents. This is because the premium to futures charge is 4 cents and the freight from Chicago to the New Orleans area is around 30 cents. Adding these two values together gives a total of 34 cents. The answer options of 34, 34 cents, and .34 all represent the same value.

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6. If value equals $3.50, the interest rate is 6%, and time of ownership is 30 days, what is the cost of carry?

Explanation

The cost of carry is calculated by multiplying the value by the interest rate and dividing it by the number of days in a year. In this case, the value is $3.50, the interest rate is 6%, and the time of ownership is 30 days. Thus, the cost of carry is (3.50 * 0.06) / 365 = 0.0175 dollars per bushel.

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7. If value equals $4.00, the interest rate is 7%, and time of ownership is 90 days, what is the cost of carry?

Explanation

The cost of carry is calculated by multiplying the value by the interest rate and dividing by the number of days in a year. In this case, the value is $4.00, the interest rate is 7%, and the time of ownership is 90 days. So, the cost of carry would be (4.00 * 0.07 * 90) / 365 = 0.07 dollars per bushel.

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8. All US agricultural crop futures contracts are settled in which of the following way(s)?

Explanation

US agricultural crop futures contracts can be settled in two ways. The first way is through the delivery of the underlying physical commodity, which can be done by using "shipping certificates" or warehouse receipts. This means that the actual physical product is transferred to the buyer. The second way is by offsetting the contract through an identical futures contract. This involves entering into a new contract that cancels out the original contract, with both contracts having the same exchange and expiration month. This allows traders to close out their positions without physically delivering or receiving the commodity.

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9. The basis level sufficient to allow moving grain into or out of a futures delivery position is known as what?

Explanation

The correct answer is "Delivery value equivalent." Delivery value equivalent refers to the basic level required to facilitate the movement of grain into or out of a futures delivery position. It is the value that represents the cost associated with delivering or receiving the physical commodity when trading futures contracts.

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10. The basis trader's profit margin is made up primarily of which of the following?

Explanation

The basis trader's profit margin is primarily composed of the buy basis, futures spreads, the sell basis, and the cost of carry. The buy basis refers to the difference between the cash price and the futures price when buying a commodity. Futures spreads represent the price difference between different futures contracts. The sell basis is the difference between the cash price and the futures price when selling a commodity. The cost of carry includes expenses such as storage, insurance, and interest costs associated with holding a physical commodity.

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The cost of carry is the cost for a grain elevator to take ownership...
Which of the following is the correct Cost-To-Carry formula?
Which of the following choices could help to increase your margins on...
If value equals $4.50, the interest rate is 8%, and time of...
If the premium to futures charge is 4 cents, and freight from Chicago...
If value equals $3.50, the interest rate is 6%, and...
If value equals $4.00, the interest rate is 7%, and time of...
All US agricultural crop futures contracts are settled in which of the...
The basis level sufficient to allow moving grain into or out of a...
The basis trader's profit margin is made up primarily of which of...
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