A swap that is used to fix the price of a given commodity such as jet fuel or gas. It entails that the buyer of the swap pays a fixed price for the commodity regardless of what happens to the market price. This is the case when a user of that commodity is unable to charge the commodity price increases on its customers. These increases can be reined in using a commodity fixed price swap.
This swap requires no up-front costs and provides the buyer with full protection from prices moving up a specific level, but at the same time does not allow it to gain from price decreases.
Comments