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

normal goods and inferior goods examplescost plus pricing advantages and disadvantagesdefine contingent liabilitiesdisadvantages of the gold standarddifference between retail banking and commercial bankingeconomic systems advantages and disadvantagestypes of cheques crossinglimitation of absorption costingprepaid journal entryadvantages and disadvantages of mixed economy pdfcharacteristics of capitalist economic systemloan vs overdraftauthoritarian leadership advantagesbalance sheet horizontal analysiswhat is pre open trading sessiontypes of crossing of chequejournal entry deferred revenueplr sbicongeneric mergersadvantages and disadvantages of nationalisationtypes of elasticity of demand with examplesadvantages and disadvantages of command economysales promotion advantages and disadvantagesadvantages of bank reconciliation statementadvantage of absorption costingadvantages of a planned economyexamples of process costingwhat is an autocratic leadership stylecapital goods vs consumer goodsmarket capitalization of icici bankfull form of tallydemerits of socialismstatutory liquidity ratio formulaglobalization benefits and drawbacksdisadvantages of international marketingadvantages and disadvantages of advertising on social medialiquidity ratios listbenefits of currency devaluationassumption of diminishing marginal utilitywhat is autocratic decision makingfdi abbreviationnormal vs inferior goodsperformance based budgeting advantages and disadvantagesdifferentiate between direct and indirect taxesslr fullformdisadvantages and advantages of market economyprivate goods economicsmixed economy definition and examplewhat are the characteristics of mixed economybills of discountinglaw of diminishing return in economicsdebentures as a source of financeadvantages and disadvantages of mixed economiesconcept of capmglobalisation advantages and disadvantagescost push inflation definitionadvantages and disadvantages of command economydisadvantages of fixed deposit accountadvantages of urbanisationdirect quote vs indirect quotethe materiality principleadvantages and disadvantages of income statementtypes of financial marketdisadvantages of lifoadvantages and disadvantages of mergers and takeoverslimitations of managerial economicssecuritizing accounts receivabledifference between quotas and tariffswhat is indirect quotationdisadvantages of a cashless societymsf full formfifo methodsdirect and indirect quotes in foreign exchange marketdcf approachadvantages and disadvantages of payback methodfullform of impsfullform of nasdaqadvantage of autocratic leadershipdefinition traditional economyadvantages of dcfdiscounting of bills meaning