What is settlement rate?

This is the rate used in the settlement of 'cash settlement' contracts, such as index options and futures, or certain currency options. This rate is used to offset the value of outstanding positions at the end of the contract's term. The settlement rate is often determined based on an average of the rates recorded on the last trading day. This concept is important within the financial world, particularly in the context of derivatives trading and the settlement of financial contracts.

Understanding the settlement rate is essential for assessing the final financial obligations upon the settlement of these contracts.