Cash settlements are used to fulfill outstanding obligations in futures trading and legal disputes. They may also be offered to customers facing financial problems to pay off outstanding debts. Failure to meet the terms of a cash settlement may result in additional restitution or legal consequences.
Cash settlements occur as part of payments related to futures contracts and also as part of the settlement process in a legal dispute. In general, a cash settlement is simply the process of using cash to settle some type of outstanding obligation, thus fulfilling the terms of the transaction and allowing the matter to be considered resolved or completed. After the cash delivery, both the originator and the receiver involved in the transaction are free to concentrate on other matters.
When it comes to futures trading, the process of using a cash settlement as a form of payment is common. Essentially, a cash settlement will be extended on the collateral trade date, rather than on the settlement date. This allows the underlying of the security involved in the transaction to retain the underlying asset that formed the basis for the futures or options in the first place.
In the case of legal situations, a cash settlement is often ordered as a means of restitution in the event of a lawsuit. Generally speaking, the court will order that a fixed amount of cash or cash assets be delivered to the entity that wins the lawsuit within a specified period of time. In the event that the terms of the cash settlement are not met, additional restitution may be ordered, assets may be seized to settle the debt, or one party may spend time behind bars.
Some providers will also offer a customer a cash settlement to pay off an outstanding debt. This is often the case when the client is facing serious financial problems and may be considering bankruptcy. To avoid being listed as a creditor on the bankruptcy list, the seller may offer a cash settlement offer to the customer that can be up to half the amount owed. Often this is enough to at least cover the provider’s actual expenses, although it eliminates any profit on billed transactions.
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