What does the term Delivery Against Payment refer to?

• A. A payment made before the delivery of securities
• B. Transactions involving the purchase and payment on the settlement date
• C. A method of electronic transfer without intermediary involvement
• D. A financial instrument traded without prior consent

Answer: (B)

Delivery Against Payment (DAP) is a term used in finance that specifically refers to a transaction where the buyer of securities makes payment simultaneously with the receipt of those securities. This method ensures that the exchange occurs securely; the buyer provides the payment, and in turn, receives the securities being purchased on the settlement date.

This practice is crucial in maintaining trust and efficiency in financial markets, as it lessens the risk of fraud for both parties involved in the transaction. The simultaneous exchange is also vital for regulatory compliance, ensuring that all parties fulfill their obligations as per the terms of the agreement, leading to a smoother settlement process.

While other options touch on various aspects of transactions or payment methods, they do not accurately capture the essence of DAP, which hinges specifically on the synchronized process of delivering securities and receiving payment.