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Commodity Swap |
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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. Notes: 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. See also: Commodity, Commodity Swap, Currency Swap, Hedge, Interest Rate Swap, Swap, Total Return Swap |
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| Note: Periodic payments on notional principal contracts, such as interest-rate or commodity swaps, will be treated as ordinary income or expense, in any event. The commodity swap providers - Bank of Montreal (rated 'AA-/F1+' with a Stable Outlook by Fitch) and UBS (rated 'AA+/F1+' with a Stable Outlook by Fitch). Net swap payments from the commodity swap counterparty; |
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