How Does a Physical Settlement Guarantee the Delivery of a Specific Quality of the Underlying Asset? ▴ Learn

How Does a Physical Settlement Guarantee the Delivery of a Specific Quality of the Underlying Asset?

Physical settlement guarantees a specific quality because the futures contract specification explicitly defines the grade, type, and location of the deliverable asset. For example, a Bitcoin futures contract requires the delivery of fungible Bitcoin, while a commodity contract specifies a certain grade of corn at an approved warehouse.

The clearing house enforces these precise delivery standards.

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