Introduction
Cash settlement of commodity forwards refers to such commodity transactions in which two parts of the transaction conduct the netting settlement according to the terms agreed in the contract at an agreed commodity price and within the pre-arranged term (generally a certain day after the second working day of transaction).
Features
1. With their credit line or margins in the Bank, customers entrust Bank of China in buying or selling a certain commodity, participating in the international commodity trade according to their own actual demands and the commodity price fluctuations in the international markets. Final delivery of cash settlement of commodity forwards is conducted as netting settlement according to the price difference between the given contract price and the actual price on the maturity day, and the amount of such delivery is smaller with simpler procedures compared with that of physical object delivery.
2. Customers entrust the bank in buying or selling a certain commodity, on a specified day of settlement and at an agreed contract price, locking the transaction price of such commodity in the future so as to avoid potential risks for the enterprise from price fluctuations in the commodity markets.
Term
The term is more than one year, generally two years, and the longest term is variable in the light of different trading objects.
Target customers
Customers with the needs of commodity transaction someday in the future, such as manufacturers and consumption traders of various commodities. Customers should open a corresponding foreign currency account in Bank of China.
Process
Customers should deliver the instructions, and confirm the transaction details with proxy; after a transaction is concluded, Bank of China should issue the transaction authentication letter; On the pricing day, the option buyer should determine whether or not the option is exercised, as well as notify the option seller. If the option is exercised, the delivery will be conducted on the settlement day, if not, the transaction will be automatically terminated. Customers can require Bank of China to unwind the transaction within the transaction period.
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