Hello and thank you for your question.
Let's start with some piecemeal definitions, and then we'll put it
together:
Contract. An agreement between two or more persons which creates an
obligation to do or not to do a particular thing. A legally
enforceable agreement between two or more competent parties made
either orally or in writing.
Jurist
http://jurist.law.pitt.edu/dictionary.htm#sectC
Cash Settlement. The procedure by which ... futures and ... options
contracts are settled.
Glossary of Sharemarket Terms
http://www8.asx.com.au/servlet/com.webmcq.glossary.Glossary?cid=0&alt=1
Forward Contract. Forward contracts are agreements directly entered
into between a buyer and a seller, calling for delivery of a specified
amount of a specified asset at a specified, future date. The buyer and
the seller are direct contractual counterparties to one another.
IFCI Options
http://finance.wat.ch/cbt/Options/00000470.htm
So a cash-settled forward purchase contract in its simplest form is an
agreement where Mr. A pays Ms. B a sum of money (today) for the
privilege of receiving from Ms. B a sum of money (at a specified
future date) the amount of which is tied to the value of a specified
commodity, currency or whatever at that future date. It's
cash-settled because Ms. B is not going to make good her promise with
actual pork bellies or whatever the specified commodity is--she's
going to pay in cash.
Here's a too-cute-by-half tale that, if you will read it through, will
give you a sound introduction to the area:
Bob Jensen at Trinity University, Working Paper 300
http://www.trinity.edu/rjensen/acct5341/speakers/muppets.htm
May I suggest that you take a look at the glossaries cited above (I
purposely drew each definition from a different source) and then read
Bob Jensen's opus.
AFter you've done that, if you want more to read in this area, please
respond via Clarification Request and I will provide lots more.
Cheers!
richard-ga |
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