Commodity swaps (fixed-floating, commodity-for-interest) A fixed-floating swap consists of a fixed and a variable component. The variable component is based on the market price of an underlying asset or an agreed commodity index, whilst the fixed component is specified in the contract.

Normally, the raw materials producer or supplier receives fixed payments to hedge against potential market volatility and pays a variable amount. This allows the commodity buyer to secure a fixed (purchase) price over a specific period, whilst the commodity producer/supplier has hedged against potential price fluctuations. In a commodity-for-interest swap, one of the contracting parties pays interest on the market price of an underlying asset, whilst the other pays either an agreed fixed or variable rate of interest. This requires both a notional amount on which the interest payments are based, as well as a fixed term and payment intervals. With the help of this interest rate swap, the commodity producer or supplier protects themselves against an unfavourable return in the event of a fall in market prices.