Chapter 9 Cashflows and Asset Holdings

The trade is an instruction to carry out various asset and cash exchanges at one or many points after execution. The trade lifecycle is a means by which executed trades are turned into cash and assets.

We define cash to be an amount of money denominated in any recognised world currency. An asset is a holding of something other than cash. It is convenient, however, to have one term to describe the flow of cash or assets. So in this book, we use the generic term ‘cashflow’ to mean the flow of either currency or commodity.

An asset holding is a position in currency or commodity. A cashflow will add to or subtract from the holding. The effect of a trade is to change the holdings by means of cashflows. A holding differs from a trade because it does not expire.

Holdings are defined by type and amount. For example, a bank might have the assets listed in Table 9.1.

Table 9.1 List of assets

Asset type Unit Amount
GBP 3,400,000,000
USD 77,254,590
CHF 19,584,020
EUR 270,030,992
Palladium Troy ounce 31,230
Cocoa Tonnes 732,400
WTI Crude oil Barrels 2,341,892
Shares in France Telecom 74,504
Shares in BP 1,703,200

Let us work through an example trade and see how holdings and cashflows come together. We are going to use the more unusual case of physical settlement to show the movement of commodity as well as currency. The holdings are listed in Table 9.2 and the cashflows in Table 9.3.

Table 9.2 Holdings

USD ...

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