Introduction to the Bill of Exchange


A negotiable instrument is a signed writing, containing an unconditional promise or order to pay a fixed sum of money, to order or bearer, on demand at a definite time. Examples include promissory includes which are two party instruments and drafts which are three party instruments.

Alternative Definition: A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time.

A draft is the signed order of the drawer, given to a drawee who in possession of money to which the drawer is entitled, to pay a sum of money to a third party, the payee, on demand or at a definite time. A check is a form of draft, which is drawn on a bank and payable on demand. The three parties include the drawer, the drawee bank and the payee.

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The bill of exchange is a specialized type of international draft commonly used to expedite foreign money payments in many types of international transactions. Draft is used more in the U.S. while bills of exchange are used primarily outside the U.S.

A documentary draft is used to expire payment in a documentary sale.

These negotiable instruments can serve two purposes:

  1. They act as a substitute for money

  2. They act as a financing or credit service


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Prateek Agarwal loves Economics, so he decided to set up Intelligent Economist as a way to share his passion for Economics with world. After completing his undergraduate degree in Economics at U.S.C., Prateek is now working in the Healthcare industry.


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