“the manager will purchase oil in the aspot market, and because spot is above swap fixed, the manager will receive a payment from the dealer. [this is fine!]. If the spot had been below the swap fixed price, the manager would have to make a payment to the dealer” … I know this is prob a stupid Q, but surely the whole point of the swap is to hedge the commodity price. If the manager either receives or pays a payment depending on if the spot is above his fixed rate, then surely he’s still getting a variable price???
Actually… Clearly he’s the receive variable and pay fixed. Thus the other side has hedged THEIR price. Maybe he likes volatility!? Actually… why would the buyer/user of oil want to receive the variable side of a swap? Why wouldn’t they enter the receive fixed side?
Actually… Clearly he’s the receive variable and pay fixed. Thus the other side has hedged THEIR price. Maybe he likes volatility!? Actually… why would the buyer/user of oil want to receive the variable side of a swap? Why wouldn’t they enter the receive fixed side?
If it is a financial settlement and the manager is fixed payer, when spot is above the fixed rate, other party (variable payer) pay the gap to the manager and vise versa (the parties net the paymet). In other words if fixed payment is 10 and spot price is 8. Manager pays 10 and recive 8. That is net payment of 2 by the manager.