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Questions
Write a short note discounting of bills of exchange.
What is discounting of a bill of exchange?
Solution 1
The term "discount of a bill" refers to the bank's payment of a bill of exchange at a reduced rate. When the holder of a bill of exchange needs money before the bill's maturity date, he or she can present the bill to his or her bank, which will make the payment after deducting a discount. After the maturity time, the bank may receive payment for the drawee.
Solution 2
- This implies procuring cash from a bank in exchange for credit instruments. Commercial banks provide short-term finance to business concerns by discounting their bills of exchange, promissory notes and undies.
- Banks charge some commission for this service by paying a price lower than the face value of the credit instrument. The instrument holder remains liable to the bank if the instrument is dishonoured on maturity.
Notes
Students should refer to the answer according to their questions.
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