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It has the contango element of a future with an underlying that has higher storage costs than the value inflation rate, but, unlike a future, the asset already
by hessenwolf 12y ago
It has the contango element of a future with an underlying that has higher storage costs than the value inflation rate, but, unlike a future, the asset already changes hand, hence it resembles more a collateralised loan.
- talideon 12y agoContango is the key element of a futures contract, at least in my opinion. The only real difference between this and, say, a grain future is that the nature of the product allows the farmer to deliver on the immature product than with many futures, and thus the bank has to take less of a risk while giving the same benefits to the farmer of a regular future. There's less fear that something disastrous will happen before the cheese matures because the bank can control that to a great extent, unlike a bad summer, which could ruin a grain harvest, rendering a grain future worthless.