What it is:
Also called theor the current price, a cash price is the current price of a if it were to be sold or purchased today.
How it works (Example):
For example, if you purchase a cup of coffee in a restaurant, you pay the cash price -- the price of the good for immediate delivery.
Why it Matters:
There is an important link between cash prices and futures prices for commodities, and the difference between the two -- that is, the difference between the price of coffee now and the price for delivery of coffee in, say, three months -- is called the . This time spread can be an economically important variable because it indicates the expectations about futures prices. For example, if people believe that coffee sell for $40 a pound in three months, the price of a for delivery of coffee in three months cannot be $100; it be more like $40, though the price for storing the coffee helps determine the relationships between futures prices and cash prices. In any case, futures prices for a given commodity generally converge toward the cash price as the delivery month of the futures contract approaches.