Laws relating to bill Finance
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Principles and Practices of Banking — JAIIB.
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What is a 'bill of exchange' as defined under the Negotiable Instruments Act, 1881?
A bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the maker, directing the addressee to pay a certain sum of money to or to the order of a specified person or the bearer on demand or at a fixed or determinable future time.
What is a 'bill of exchange' used as a primary instrument in trade finance?
A written order directing one party to pay another.
What is the difference between a 'sight bill' and a 'usance bill'?
A sight bill (demand bill) is payable immediately on presentation, while a usance bill is payable after a specified period (usance) from the date of the bill or from the date of acceptance.
What is the 'drawer' of a bill of exchange?
The party who creates and signs the bill.
What does 'discounting of bills' mean in the context of bank finance?
Discounting of bills means the bank purchases a bill of exchange before its maturity date and pays the holder the face value minus a discount charge (interest for the unexpired period), thereby providing immediate funds to the seller.
What is 'bill discounting' as a working capital facility for exporters?
Bank pays present value of future receivable deducting interest.
What is meant by 'purchasing of bills' as distinct from discounting?
Purchasing of bills refers to the bank buying demand/sight bills where payment is expected immediately on presentation to the drawee, whereas discounting applies to usance bills that have a future maturity date.
What is the 'payee' in a bill of exchange?
The person to whom payment is directed.
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