Generated on 2014/06/19 at 04:58:08 AM


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Instrument Item: Commodity Swap



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Description (HTML) A swap in which exchanged cash flows are dependent on the price of an underlying commodity. A commodity swap is usually used to hedge against the price of a commodity.

The vast majority of commodity swaps involve oil. So, for example, a company that uses a lot of oil might use a commodity swap to secure a maximum price for oil. In return, the company receives payments based on the market price (usually an oil price index).

On the other side, if a producer of oil wishes to fix its income, it would agree to pay the market price to a financial institution in return for receiving fixed payments for the commodity.

Source Description Investopedia
Source URL http://www.investopedia.com/terms/c/commodityswap.asp
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Updated by webea.09
Updated on 2014-04-08-14.50.23.384000
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