The structures outlined above may be extended to include imported commodities, in particular petroleum or grains. Countries importing these commodities may experience difficulties in meeting scheduled loan repayments in periods when imported commodity prices are high. This extension is achievable by allowing borrowing countries to make commodity-based loans to the lenders, or to take collar positions in such loans. These loans again have swapbased or swaption-based structure.
Write the oil import price as Qt with initial (loan inception date) price of Q0. Write
Then the swap-based scheme which generalizes equation (3), is defined by
Effectively, the original fixed repayment loan as increased by the fraction µ %, which is then lent back to the lender in the form of an oil-based or grain-based loan. The borrowing country receives fixed payments on $ µ A value of this component of the loan, but makes oil- or grainslinked payments to the lender. The extension to the swaption-based scheme is straightforward
where we have defined the bands symmetrically for import and export prices. The borrowing country is long the call and short the put on the export price but short the call and long the put on the import price.
By Prof. Christopher L. Gilbert, Prof. Alexandra Tabova
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Summary: Index