“Cash Settlement is a method of hedging currency/commodity rates fluctuations by companies for a future contract or forward contract”.
Cash Settlement is a method of settlement for a transaction supposed to occur at a later date. The exchange of commodities is not evident in cash settlement as this is only a method to hedge the upcoming currency and inflation risk by companies.
Cash Settlement is a type of agreed upon cash payment for a future or forward contract where the difference between the agreed spot price of the commodities at the time of entering the contract and the market value of the same commodities at the actual transaction date is paid by the party suffering a loss regardless of the fact that actual goods are physically delivered to the buyer from the seller.
Cash Settlement is a form of settlement for a forward or future contract which works on the basis of cash position. In Cash Settlement the customers and vendors enter into an agreement in which an on the spot purchase price for commodities is decided. It is decided that at a future date the contract will expire and the market value of the commodities at the date of contract expiry will be recorded. Now the difference in on the spot commodities price and the price of commodities at the date of expiry are matched and the difference is to be paid the party which suffers a loss.