Deliverable Grades

DEFINITION of 'Deliverable Grades'

The deliverable grade specifies the minimum quality of the commodity that is to be delivered under a contract. Carefully specifying the deliverable grade ensures that both parties to the contract agree on precisely what is to be delivered, allowing the contract to be priced correctly. For any given commodity, there are many different grade and types.


For example, oil comes in many different qualities, with much different prices for each grade. If a minimum deliverable grade is poorly specified, the deliverer can profit at the expense of the acquirer by delivering a cheaper, lower quality grade than was anticipated by the contract price.

BREAKING DOWN 'Deliverable Grades'

In the futures market, firms often wish to hedge their risk to changing prices by entering contracts to buy certain commodities in advance. For example, suppose an airline wishes to hedge its risk to changes in future jet fuel prices. The airline could enter into a contract to buy a certain quantity of jet fuel, and have it delivered in the future. There are many different types of jet fuel, each with different prices, so such a contract would specify the minimum grade of fuel to be delivered. If a minimum deliverable grade is not specified, the deliverer would invariably deliver the cheapest fuel. In this situation, the airline might have overpaid considerably and it might receive jet fuel unsuitable for its purposes.

RELATED TERMS
  1. Basis Grade

    The minimum accepted standard that a deliverable commodity must ...
  2. Differential

    The amount of adjustment of the delivery location and grade of ...
  3. Deliverables

    A project management term for the quantifiable goods or services ...
  4. In Sight

    A term describing deliverable grades of commodities underlying ...
  5. Grading Certificate

    A document issued by inspectors or an approved grading panel ...
  6. Allowances

    A deviation from the basis grade or location allowable when delivering ...
Related Articles
  1. Economics

    What are Deliverables?

    Deliverables is a project management term describing an object or function that must be provided or completed by a certain due date.
  2. Investing

    What does Investment Grade Mean?

    Investment grade is a term used to describe a favorable rating for corporate and municipal bonds.
  3. Markets

    What are Commodities?

    A commodity is a basic good used in commerce that is interchangeable with other commodities of the same type. Commonly traded commodities include gold, beef, oil, lumber and natural gas. Additional ...
  4. Investing News

    Why Low Fuel Prices Aren't Enough for EU Airlines

    Low jet fuel prices alone are not enough to guarantee success in Europe’s fragmented airline market.
  5. Professionals

    Forward Markets and Contracts: Settlement Procedures

    CFA Level 1 - Forward Markets and Contracts: Settlement Procedures. Learn the differences between being long or short in a forward contract. Also contrasts how physical and cash deliveries are ...
  6. Investing Basics

    Explaining Bond Ratings

    A bond rating is a grade given to a bond to indicate its creditworthiness.
  7. Term

    The Difference Between Forwards and Futures

    Both forward and futures contracts allow investors to buy or sell an asset at a specific time and price.
  8. Economics

    4 Ways Airlines Hedge Against Oil

    Understand what a fuel hedge is and why an airline company would want to implement a hedging strategy. Learn about the different fuel hedging strategies.
  9. Options & Futures

    Options on Futures

    Options on futures contracts offer another way for day traders to use options. These are traded on the same exchange as the underlying futures contract. Traders should take care to understand ...
  10. Options & Futures

    20 Investments: Futures Contract

    What Is It? As the name implies, futures are contracts on commodities, currencies, and stock market indexes that attempt to predict the value of these securities at some date in the future. ...
RELATED FAQS
  1. Which securities are considered investment grade?

    Learn which securities are considered investment grade by credit rating agencies such as Standard & Poors and Moody's and ... Read Answer >>
  2. To what extent will changing fuel costs affect the profitability of the airline industry?

    Learn how changing fuel costs affect the profitability of the airline industry and why airline operators do not immediately ... Read Answer >>
  3. How can I tell if a security is considered investment grade?

    Understand how Standard & Poor's and Moody's rates securities. Learn what types of ratings types go into evaluating the investment ... Read Answer >>
  4. Which of the following statements least accurately describes the characteristics ...

    The correct answer is: d) The fact that any number of bonds may be delivered to fulfill a futures contract is an advantage ... Read Answer >>
  5. What is the difference between an options contract and a futures contract?

    Both futures and options trading are considered advanced forms of market trading, and require additional training or the ... Read Answer >>
  6. How can a futures trader exit a position prior to expiration?

    A futures contract is an agreement to buy or sell a commodity at a pre-determined price and quantity at a future date in ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center