GARP Updated 2016-FRR Exam Questions and Answers by kaleb

This statement is incorrect because it is generally observed that longer-term contracts can be less volatile due to the smoothing effect over time, whereas short-term contracts can be more sensitive to immediate market conditions and supply-demand imbalances.

ReferencesVerified with information on the volatility of term contracts in commodity derivatives discussed in the book "How Finance Works"​​.

Short selling in physical commodities markets involves borrowing the commodity and selling it with the hope of buying it back at a lower price. The right combination of characteristics that generally allows short selling without making the transaction prohibitively expensive includes factors like liquidity, storage costs, and ease of borrowing.

Oil: While the oil market is highly liquid, storage costs and logistical challenges can make short selling more expensive.

Natural Gas: Similar to oil, natural gas involves significant storage and transportation costs, making short selling less attractive.

Grain: Grain markets can have high volatility and storage costs that could complicate short selling.

Gold: Gold has the ideal combination of characteristics for short selling. It is highly liquid, has relatively low storage costs, and is easy to borrow. These factors make short selling gold less prohibitively expensive compared to other commodities.

According to the principles of the Basel II Accord, the implementation and relative weights of the elements of the operational risk framework depend on the culture of the financial institution (I), regulatory drivers (II), and business drivers (III). The bank's reporting currency (IV) is not relevant to the implementation of the operational risk framework under Basel II.References:Basel II Accord principles on operational risk.

Floating rate bonds typically have a short duration because their interest payments reset periodically, aligning closely with current interest rates. This frequent resetting makes them less sensitive to changes in interest rates compared to fixed-rate bonds, which have a long duration and are more sensitive to interest rate fluctuations.