Commodity Swap
A swap where exchanged cash flows are dependent on the price of an underlying commodity. This is usually used to hedge against the price of a commodity. Investopedia Says:
In this swap, the user of a commodity would secure a maximum price and agree to pay a financial institution this fixed price. Then in return, the user would get payments based on the market price for the commodity involved.
On the other side, a producer wishes to fix his income and would agree to pay the market price to a financial institution, in return for receiving fixed payments for the commodity.
The vast majority of commodity swaps involve oil. Related Terms:
Commodity
Currency Swap
Hedge
Intercontinental Exchange
Interest Rate Swap
Swap
Total Return Swap |