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It is a type of settlement risk that occurs in a foreign exchange settlement where one of the parties of the transaction would send the currency that they sold, but they do not receive the currency that they bought.

Foreign exchange (FX) settlement risk is the risk of loss when a bank in a foreign exchange transaction pays the currency it sold but does not receive the currency it bought.FX settlement risk is a form of counterparty risk involving both credit risk and liquidity risk.

Currency futures are standardized contracts that trade on centralized exchanges. The futures are either cash-settled or physically delivered. Cash-settled futures are settled daily on a mark-to-market basis. As the daily price changes, the differences are settled in cash until the expiration date.

Daily Mark-to-Market Settlement The positions in the futures contracts for each member is marked-to-market to the daily settlement price of the futures contracts at the end of each trade day.

The settlement of Forex transactions by CCIL started from November 8, 2002. This segment accepts the inter-bank Cash, Tom, Spot and Forward USD-INR transactions for settlement through a process of multilateral netting. The multilateral netting system provides a netting benefit of well over 95%.

The settlement date for stocks and bonds is usually two business days after the execution date (T+2). For government securities and options, it's the next business day (T+1). In spot foreign exchange (FX), the date is two business days after the transaction date.

4feff Only a small percentage of currency futures contracts are settled in the physical delivery of foreign exchange between a buyer and seller. When a currency futures contract is held to expiration and is physically settled, the appropriate exchange and the participant each have duties to complete the delivery.