• Commodity Swap

    A solution for hedging commodity risks arising from potential adverse movements of commodity prices.

Hedging

Protect yourself against significant changes in commodity prices.

As needed

Several product modifications are available.

Confirmation

Review all parameters of your executed transactions.

Simple

Negotiate transactions on telephone with Sales dealer.

Why KB?

Do not risk

We will help you find the right hedging strategy.

Let us help

Contact the toll-free KB Info Line at 800 521 521 anytime.

Simply call

Negotiate your transactions from wherever you are.

How to get this product?

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Intended for

Entrepreneurs and legal entities – domiciled in the Czech Republic and abroad.

Product purpose

Commodity swaps are used to hedge adverse movements of commodity market prices.

About Commodity Swap

  • Solution for clients who wish to hedge risk of changes in commodity market prices
  • Pre-agreed fixed forward price of a commodity is compared to daily closing prices or officially quoted average commodity price (e.g. quarterly average) during the reference period
  • 2 to 5 working days after the end of the reference period, the difference between forward and market prices the agreed commodity quantity is paid by the party in disadvantageous position
  • Transaction settlement is always financial, physicals are never exchanged
  • Settlement is calculated as PA = NA * abs(AVR – P), where:
    • PA – payment amount
    • NA – negotiated commodity amount
    • AVR – average price
    • P – agreed fixed price

Commodity Swap

You might also like to know

  • In addition to the plain vanilla commodity swap, there are three product modifications available:
    • Quanto:
      • The underlying commodity price is quoted in another currency – different from the settlement currency
    • Basket:
      • The underlying is a basket of several commodities
    • Deferred price fixing:
      • The fixed forward price is not known on the day the transaction is negotiated
      • The fixed price is determined on the basis of daily quoted averages over a specific future period
  • Early termination of commodity swaps:
    • Transaction counterparties may agree to terminate commodity swaps early before maturity date
    • If a commodity swap is terminated early a single payment of market value is made. Any future liabilities thereby cease to exist

Important information for you

Risk

  • Profit or loss from commodity transactions is affected by commodity price fluctuations
  • The client will incur loss if the commodity prices move against him during individual reference period – the client’s payment exceeds the amount to be paid by the bank
    • In this case, the client pays a difference of the two payments to the bank
    • In case the transaction was negotiated as a hedging instrument, the loss represents cost of hedging (hedging protects clients from significant commodity price fluctuations that could result in financial problems)