CASH SETTLEMENT Meaning and
Definition
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Cash settlement refers to a type of financial transaction in which the payment for a security or derivative contract is made in cash rather than through the physical delivery of the underlying asset. This method is commonly employed in the trading of futures contracts, options, and other derivatives.
In a cash settlement, the value of the asset is determined by the difference between the agreed-upon contract price and the current market price at the time of settlement. If the asset has increased in value, the buyer pays the seller the difference, while if the asset has decreased in value, the seller pays the buyer. This process eliminates the need for the physical transfer of the underlying asset.
Cash settlement offers numerous advantages, including greater flexibility, liquidity, and reduced operational costs compared to physical settlement. It allows investors and traders to easily enter and exit positions without having to deal with the logistics and expenses associated with transferring physical assets. Additionally, it reduces counterparty risk, as there is no need to ensure the safe and timely delivery of the asset.
Overall, cash settlement provides a convenient and efficient method for completing financial transactions, particularly within the realm of derivatives and futures trading, by facilitating the transfer of value without the exchange of physical assets.
Common Misspellings for CASH SETTLEMENT
- xash settlement
- vash settlement
- fash settlement
- dash settlement
- czsh settlement
- cssh settlement
- cwsh settlement
- cqsh settlement
- caah settlement
- cazh settlement
- caxh settlement
- cadh settlement
- caeh settlement
- cawh settlement
- casg settlement
- casb settlement
- casn settlement
- casj settlement
- casu settlement
- casy settlement
Etymology of CASH SETTLEMENT
The term "cash settlement" can be broken down into two parts: "cash" and "settlement".
1. Cash:
The word "cash" originated in the Middle French word "caisse", which referred to a money box or coin chest. It then entered English around the 16th century, first appearing as "caisse" or "casse", and eventually evolving into "cash". The origin of "caisse" itself can be traced back to the Latin word "capsa", meaning "box" or "chest".
2. Settlement:
The word "settlement" is derived from the Middle English term "settlement", which meant a place of habitation or a village community. This term, in turn, was derived from the Old English word "setl", meaning "seat" or "dwelling".
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