Investment Company and. Variable Contracts Products Principals (Series 26) Practice Exam

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What is required from a buyer on the cash settlement of a trade?

Payment from the buyer at any time
Delivery of securities from the seller in 3 days
Payment from the buyer on the same day
Delivery of securities in one business day

The correct answer is: Payment from the buyer on the same day

In the context of cash settlements for trades, the requirement is for the buyer to make payment on the same day the trade is executed. This principle aligns with the definition of a cash transaction, where the buyer is expected to settle the trade immediately without the settlements typical in a standard (T+2) trade that allows for a two-day grace period for payment and delivery of securities. This immediate payment requirement facilitates quick and efficient transactions, especially in the context of corporate and institutional trading, where liquidity and cash flow management are paramount. On the same day of the trade, funds must be transferred to ensure that both parties fulfill their obligations promptly and reduce the risk associated with delayed settlements, effectively ensuring that the buyer's transaction is finalized without extending the timeline typical of traditional trades.