A commodity swap is (typically)
A) An agreement to exchange one commodity for another.
B) An agreement to exchange the price on one commodity for a fixed amount on future dates.
C) An agreement to exchange the return on one commodity for a fixed amount on future dates.
D) A series of forward contracts on commodities at different forward prices.

Question

Quizplus · Accepted Answer

A commodity swap is typically an agreement between two parties to exchange cash flows based on the price of a commodity. In a commodity swap, one party agrees to pay the other party the return on a specified notional amount based on a floating commodity price, while the other party agrees to pay a fixed rate of return on that notional amount. This helps to hedge against price fluctuations in the commodity market. Therefore, option B, which involves the exchange of a commodity price for a fixed amount on future dates, is the best choice.

A Commodity Swap Is (Typically)