top button
Flag Notify
    Connect to us
      Site Registration

Site Registration

What is cash settlement in futures contract, why is it adopted in practice?

+1 vote
100 views
What is cash settlement in futures contract, why is it adopted in practice?
posted Jul 4, 2017 by Deepak Jangid

Share this question
Facebook Share Button Twitter Share Button LinkedIn Share Button

1 Answer

0 votes

A cash settlement is a settlement method used in certain futures and options contracts where, upon expiration or exercise, the seller of the financial instrument does not deliver the actual underlying asset but instead transfers the associated cash position. For sellers not wishing to take actual possession of the underlying cash commodity, a cash settlement is a more convenient method of transacting futures and options contracts. For example, the purchaser of a cash-settled cotton futures contract is required to pay the difference between the spot price of cotton and the futures price, rather than having to take ownership of physical bundles of cotton.

answer Jul 4, 2017 by anonymous
...