Commodity swap

For whom it is intended:

• Particularly for legal entities
  

Definition: 

Commodity swap refers to a transaction wherein one party pays (once or periodically) floating amounts in a specified currency calculated from a  notional amount in the given currency and a floating price, and a  second party pays (once or periodically) fixed amounts in the same currency calculated from the same notional amount at a fixed price.

This product serves to hedge risks resulting from price fluctuations for the given commodity. Only the price difference is settled monetarily, not the notional amounts.

A commodity swap is offered only for the purpose of hedging risks resulting from and associated with the client’s business activities.

Advantages of the product:

• The buyer of the swap is hedged against fluctuation in the price of the commodity.
• No costs connected with concluding a transaction
• Flexibility of parameters – can easily be adjusted to the actual needs or use for the commodity

Disadvantages of the product:

• The buyer has no possibility to profit from a drop in the commodity price.

Variations of the product:

• The volume of the commodity can be either constant or changing in individual months according to the client’s needs.

Conditions of concluding a transaction:

• Master Agreement for Financial Transactions
• Limit for treasury operations
• Settlement currencies: EUR, USD, and for certain commodities CZK
• Minimum volum
  
  • Crude oil derivatives – 100 metric tonnes monthly
  • Industrial metals – 25 metric tonnes monthly

For more information, please contact your bank advisor.