Cash Settlement of Futures Contracts: An Economic Analysis

Article Abstract:

Cash settlement of futures entails many aspects. The tradition of such settlements and the desirability of them are considered. Construction and heterogeneous grades of identical commodities are also examined. Four kinds of partial cash settlement are possible: offset, trade for physicals, unequal physicals with cash, and cash settlement with a corner. These are analyzed as to their voluntary or mandatory nature, and their possible advantages. Index measures of the commodities' commercial value are central to the issue. Choice of cash settlement methods has three usual motivations: high delivery cost creating a need for convergence, decreasing squeezes and corners, and the accuracy and reliability of the index.

Measurement, Economics, Commodities, Accounts receivable

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Covered arbitrage in foreign exchange markets with forward forward contracts in interest rates: reply

Article Abstract:

Carl Batlin criticizes and discredits the redefined covered interest rate parity under a modified setting. His bid is defective because of his misunderstanding of the Interest Rate Parity Theorem. It is important to note J.O. Grabbe's observations which is the tendency to equate the implied forward rate with the expected short-term interest rate that will occur at time t + n. The expectations theory should be regarded as a purely empirical suggestion in the same way that the speculative efficiency hypothesis is a purely empirical suggestion.

Criticism and interpretation, Futures, Arbitrage, Foreign exchange market, Foreign exchange futures, Batlin, Carl A.

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