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What is a Cash Price?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 24 January 2020
  • Copyright Protected:
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    Conjecture Corporation
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Also known as a spot price, the cash price is the current or present delivery price associated with a specific commodity that is being traded on a spot market. Typically, this figure includes all costs associated with the transaction, including the actual price for the commodity. Costs like the carrying charge and any type of transportation costs that are necessary in order to deliver the commodity to the buyer are examples of the addition charges that are part of the cash price.

The cash price serves as the price that the investor must agree to in order to secure ownership of the commodity as of today. This is different from commodity transactions that involve futures contracts, in which the investor is contracting to purchase the commodity by a certain date in the future and at a price that is different from the current market value of the commodity. With a cash price, the transaction is settled as soon as the seller receives payment from the buyer, and the buyer has taken possession of the commodities that were sold.

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One of the major benefits of the cash price approach is the immediate settlement of the transaction. For the seller, this means that the payment is tendered quickly and in a form that can easily be added to a bank or investment account for immediate usage. Buyers can quickly secure ownership of the commodity and immediately sell the asset at a profit for a higher price, if market conditions allow. The cash settlement process means that neither party has to wait to acquire what he or she desires from the transaction, and both can make use of the new asset in any way desired without delay.

Other common uses of a cash price are found in various retail situations. For example, a realtor may offer a slightly lower cash price to buyers who have the funds on hand to make a purchase, without the need to obtain financing. In like manner, a car dealer may offer a special cash price to a buyer if he or she can purchase the vehicle using cash or a cash instrument, rather than requiring the arrangement of some type of monthly payments.

In some nations, vendors offer a lower price if purchases are paid using local currency rather than with credit cards. This is because credit card payments may have a delay of anywhere from twenty-four to forty-eight hours until the funds are available to the vendor. With a cash price, the funds are in hand and can be used without waiting for the amount of the purchase to post to an account.

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