FX and Commodities

An FX forward converts future foreign-currency cash into a known domestic amount. A commodity forward helps a producer or consumer manage a future sale or purchase. Both prices depend on carry. This lesson compares interest-rate differentials, storage costs and the benefit of holding physical inventory.

• read spot FX quotes (including bid–ask) under market conventions;
• state and prove covered interest parity $F_0 = S_0 e^{(r-r_f)T}$ and run the arbitrage when it fails;
• distinguish investment vs consumption commodities and when cost-of-carry is an equality vs an inequality;
• define contango, backwardation, convenience yield and storage costs;
• outline producer/consumer hedging uses of commodity forwards and futures.

1. Spot FX market structure
2. Covered interest parity
3. Commodity spot markets
4. Contango, backwardation and the forward curve
5. Convenience yield and the theory of storage
6. Hedging applications
7. Unified carry table
8. Both funded routes end in domestic cash
9. Inventory benefit reduces the carry price