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(1) A (physical) commodity forward contract featuring an upfront payment by the buyer equal to the present value of future commodity deliveries. The commodity deliveries may be priced at spot prices in effect on each delivery date, making the transaction a loan secured by an obligation to deliver the commodity at future market prices. Alternately, the contract may call for delivery of specific quantities on each delivery date, in effect fixing future delivery prices. (2) An annuity-like transaction in which the present value of future payments on one side of a swap is paid up front and the other (variable) side payments are paid on a traditional swap schedule. The functional equivalent of a variable rate loan. See Reverse Zero Coupon Swap.
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