can any 1 Plz explain convenience yield with example???
A jeweler needs to have gold on hand to be able to make repairs to jewelry when his customers arrive; it is inconvenient to have to purchase gold after they arrive, so he earns a convenience yield by holding gold.
A baker needs to have flour on hand to be able to bake cookies every morning; it is inconvenient to have to purchase flour every morning, so he earns a convenience yield by holding flour.
Thanx a lot S2000magician 
i have read in curricullum that it is non monetary benefit,so why we subtract it from costs in cost of carry model…nd how it is realised in quantative terms ???
Yeah it sounds like if you are going long a future, meaning you will buy a commodity, the convenience yield belongs to the guy who will sell it to you. So wouldn’t that decrease the cost?
anyone take a stab at this?
A long future (whether comodity, stock etc) is a delayed purchase. Therefore for a long future, any benefits to the holder belong to the current holder and not future holder and hence negative. The opposite is true for the long asset/commodity position.
A perfect example to look at is dividends although convinience yield only applies to consumption asset, the principle is the same. The long future on stocks wont get dividends from the asset, but the holder of the asset does, and hence negative.
I didn’t get the the bit about it being a ‘non-monetary benefit’. If you didn’t own the gold (and were a jeweler) you’d need to rent the gold from somewhere to have it on hand. And if you don’t have it on hand you cant work.
if I had 100oz of gold in my safe, I might decide to sell futures on it and roll them. But I’d expect to pay for the roll which would be the ‘convenience yield’ i.e. the cost of renting the gold.
the formula also treats it as a monetary quanitity ( cost of carry - convinence yield) so intuitively the insurance cost/storage costs should be offset by ‘convinence yield’ which is blinding obvious if you forget about futures for a while.
why would you be a jeweler, pay for the safe and insurance, and it not be worth your while?