What is Commodity Swap

Before defining commodity swap, first one should know the meaning of swap; swap refers to an agreement between two parties to exchange series of payments on predetermined terms. Commodity swap refers to an agreement between two parties under which the cash flows which need to be exchanged are dependent on the price of the underlying commodity. Underlying commodity can be anything from base metal to agricultural produce, crude and other metals.

Commodity swap are used by the companies in order to hedge against the rising prices of commodities, so for example if a company has steel as its raw material, but if the prices of steel are very volatile then the company can go for commodity swap where it agrees to receive payment linked to steel prices and pays a fixed rate in exchange to the other party.

Commodity swap can also be used by the producer of commodity. So if producer is not sure about the revenue which he or she can get from his or her produce due to fluctuation in the commodity price then producer can go for commodity swap where the producer will agree to pay the market price to a financial institution in return for receiving fixed payments for the commodity.

0 comments… add one

Leave a Comment


Related pages


accounting ebitadjusting entries for unearned revenuemeaning of wholesaler and retailera distinguishing feature of managerial accounting isnon diversifiable risk examplea trial balance is prepared tofeatures of capital budgeting decisionglobalisation advantages and disadvantagesrecording prepaid expenseshypothecationwhat is vertical analysis in accountingmerits and demerits of globalisation in indian economyparticipants in derivative marketunitary elastic demand graphthe difference between normal and inferior goods is thatdisadvantages of economic value addedwhat is capm modelexamples of substitute goods in economicsdisadvantages of marketing strategyjournal entry for closing stockloans for disadvantaged studentsdividend wikiexamples of conglomerate merger companiesadvantages and disadvantages of forecastingbenefits of managerial accountingdisadvantages of social media marketingdifference between demat and trading accountmanufacturing overheadswhat is current liabilities with examplesadvantages of dcfdefinition traditional economydefinition of capital budgeting in financial managementwhat are complement goodsrigid cost plus pricingadvantages and disadvantages of lifo and fifodisadvantages of mixed economic systemasset revaluation journal entryprofit skimmingadvantages and disadvantages of break evenconcept of diminishing marginal utilitywhat is trial balance & why it is preparedwhat is the difference between implicit and explicit costdefine mixed economy in economicswhat is planned economy definitionhow to fill out a bank withdrawal slipservices rendered accounting entryrole of government in command economywhat are the advantages of capitalismcongeneric mergercharacteristics of a autocratic leaderunearned revenue t accountlocational arbitrage examplethe advantages and disadvantages of globalisationpositives of urbanizationmonopoly tutor2udifference between bank overdraft and cash creditadvantages and disadvantages of merger and acquisitionbarder and tradewhat is materiality principle in accountingcurrent cost accounting advantages and disadvantagesprepaid insurance journal entry exampleadvantages and disadvantages of issuing stockskimming policylimitation of absorption costingfinance payback periodperfect competition tutor2ubenefits of jit inventorysocial media advertising advantages and disadvantagesdefinition of profitability ratiosautocratic leadership advantages and disadvantagesdiversifiable risk exampledifference between capitalist and socialistmonopoly oligopolyfeatures of a capitalist economydisadvantages of organizational chartmonopoly and oligopoly market structuresadvantages of marketing segmentationconsignor consignee