Bills of Exchange | Bills of Exchange Meaning | What are Bills of Exchange |

Summary

The video script explains the concept of bills of exchange through a story about Mr. Needy and Mr. Privilege. It details how Mr. Needy buys mobile covers on credit from Mr. Privilege, creating a bill of exchange as a legal promise to repay. Key elements and parties involved in a bill of exchange, such as the drawer, drawee, and payee, are described. The essentials of a bill, including the date, amount, and signatures, are covered. The script also explains discounting and rediscounting of bills, highlighting their role in facilitating trade without immediate money exchange.

Takeaways

• 📜 Bills of exchange are legal documents used for credit transactions.
• 🛒 Mr. Needy, a businessman, wanted to buy mobile covers on credit from Mr. Privilege's shop.
• 📝 A bill of exchange includes the amount of credit, date of drawing, repayment date, and names of both parties.
• 🔏 The bill must be accepted by the drawee (Mr. Needy) to have legal validity.
• 👥 There are generally three parties involved: the drawer (Mr. Privilege), the drawee (Mr. Needy), and the payee (who may be the same as the drawer).
• 📅 The bill must clearly state the date, amount (in figures and words), names, addresses, term, and signature.
• 💸 If the drawer needs money before the maturity date, they can discount the bill with a bank.
• 🏦 Discounting involves selling the bill to a bank at less than its face value, with the bank charging a discount rate.
• 🔄 The bank can rediscount the bill with the Reserve Bank of India if it needs money.
• 🌍 Bills of exchange are widely used in both domestic and international trade as they facilitate transactions without immediate cash exchange.

Q & A

What is a bill of exchange?

A bill of exchange is a written order used in international trade that binds one party to pay a fixed amount of money to another party on demand or at a predetermined date.

Who are the parties involved in a bill of exchange?

The three parties involved are the drawer (the person who creates the bill), the drawee (the person on whom the bill is drawn), and the payee (the person who is to receive the payment).

What essential details must a bill of exchange contain?

A bill of exchange must contain the date, the amount in figures and words, the names and addresses of the drawer and drawee, the term or tenure of the bill, the stamps if required, and the drawer's signature.

Why did Mr. Privilege agree to give mobile covers on credit to Mr. Needy?

Mr. Privilege agreed because he did not need the money immediately and Mr. Needy promised to repay the amount by a specific date, providing a written legal document as security.

What must happen for a bill of exchange to have legal sanctity?

The bill must be accepted by the drawee. Acceptance is shown when the drawee signs their name across the face of the bill along with the place and date.

What happens if Mr. Privilege needs money before the maturity date of the bill?

Mr. Privilege can discount the bill of exchange, which means selling it to a bank before the due date at less than its face value. The bank charges a discount rate as commission for this service.

How is the discount amount on a bill of exchange calculated?

The discount amount is calculated as a percentage of the face value of the bill. For example, if the face value is 50,000 rupees and the discount rate is 6%, the discount amount would be 3,000 rupees.

What does 'for value received' imply in a bill of exchange?

It implies that the drawer has received the value in consideration of the transaction on which the bill is drawn. It is a customary phrase used in bills of exchange.

What can the bank do if the bill is dishonoured on maturity?

If the bill is dishonoured, the bank can recover the payment from the drawer.

What is rediscounting of a bill of exchange?

Rediscounting occurs when the bank, having already discounted a bill, sells it to the Reserve Bank of India or another financial institution. The RBI may then rediscount the bill at a lower rate.

Outlines

00:00

📜 Understanding Bills of Exchange through a Story

In this paragraph, a story introduces the concept of bills of exchange. Mr. Needy, an emerging businessman, wishes to buy 5000 mobile covers from Mr. Privilege's shop but lacks the immediate funds. Mr. Needy requests a three-month credit, promising to repay by August 1st. After negotiating and establishing trust through a written document, Mr. Privilege agrees. This document, detailing the credit amount, date, repayment period, and parties involved, is a bill of exchange. The acceptance of the bill by the drawee (Mr. Needy) is essential for its legal validity. The paragraph explains that generally, three parties are involved: the drawer (Mr. Privilege), the drawee (Mr. Needy), and the payee, who may be the same as the drawer or different.

05:01

💡 Key Elements and Discounting of Bills of Exchange

This paragraph dives into the essential details a bill of exchange must contain, such as the correct date, the amount in figures and words, the drawee's name and address, the bill's term, and the necessary stamps. It also covers the signature of the drawer. The concept of discounting a bill of exchange is explained through Mr. Privilege's potential need for money before the bill's maturity. He can sell the bill to a bank at a discount, receiving less than its face value. The bank, in turn, can rediscount the bill with the Reserve Bank of India if needed. This process facilitates trade without immediate cash transactions, making bills of exchange a valuable tool in domestic and international trade.

Keywords

💡Bills of Exchange

Bills of Exchange are financial instruments used in trade to ensure the payment of a specified amount of money on a fixed date. In the video, they facilitate a transaction between Mr. Needy and Mr. Privilege, allowing Mr. Needy to purchase mobile covers on credit with a promise to pay later. The concept is central to the video's theme of trade facilitation without immediate cash payment.

💡Drawer

The Drawer is the person who initiates the bill of exchange by writing it and requesting payment. In the script, Mr. Privilege is the drawer, as he is the one who drafts the bill of exchange for the mobile covers sold to Mr. Needy. The role of the drawer is crucial in the creation of a bill of exchange.

💡Drawee

The Drawee is the person on whom the bill of exchange is drawn and who is expected to pay the amount specified in the bill. In the video's context, Mr. Needy is the drawee, as he is obligated to repay the amount for the mobile covers to Mr. Privilege by a specified date.

💡Payee

The Payee is the person who is entitled to receive the payment from the drawee. In the script, Mr. Privilege is the payee since he is to receive the payment for the mobile covers sold on credit to Mr. Needy. The payee's role is essential for the bill of exchange to be completed.

💡Credit

Credit in this context refers to the arrangement where goods are sold with the understanding that payment will be made at a later date. Mr. Needy purchases mobile covers on credit, which means he will pay Mr. Privilege the agreed amount after a three-month period. This concept is key to the story as it demonstrates the trust and financial flexibility involved in the transaction.

💡Acceptance

Acceptance in the context of a bill of exchange is the act of the drawee signing the bill, acknowledging the obligation to pay. In the script, Mr. Needy's acceptance of the bill is necessary to give it legal sanctity. The acceptance is a critical step that validates the bill of exchange.

💡Maturity Date

The Maturity Date is the date on which the payment for the bill of exchange is due. In the video, the maturity date is three months from the date of drawing the bill, which is when Mr. Needy is expected to repay Mr. Privilege for the mobile covers.

💡Discounting

Discounting refers to the process where a bill of exchange is sold to a bank or financial institution before its maturity date at a price less than its face value. In the script, if Mr. Privilege needs money before the bill's maturity, he can discount it, with the bank charging a commission for this service.

💡Face Value

The Face Value is the amount of money that the bill of exchange is worth and is due to be paid at its maturity. In the video, the face value of the bill for the mobile covers is 50,000 rupees, which is the amount Mr. Needy promises to pay Mr. Privilege.

💡Legal Document

A legal document in this context is a written agreement that can be used in court to enforce the terms of the bill of exchange. Mr. Needy offers to provide a written agreement as security for his promise to repay, which serves as a legal document to protect Mr. Privilege's interests.

💡Rediscounting

Rediscounting is the process where a bank or financial institution sells a previously discounted bill of exchange to another bank or the central bank. In the script, it is mentioned that the Reserve Bank of India may rediscount a bill to meet its financial needs, demonstrating the liquidity management aspect of bills of exchange.

Highlights

Introduction to the concept of bills of exchange through a story involving Mr. Needy and Mr. Privilege.

Mr. Needy wants to buy 5000 mobile covers but lacks the immediate funds to pay for them.

Mr. Needy requests credit for the purchase, proposing a repayment date of 1st of August.

Mr. Privilege agrees to give credit but requires a written agreement as a legal document.

Mr. Privilege drafts a bill of exchange, detailing the credit amount, location, repayment date, and the person responsible for repayment.

A bill of exchange must be accepted by the drawee (Mr. Needy) to have legal sanctity.

There are three parties involved in a bill of exchange: the drawer, the drawee, and the payee.

The drawer and the drawee can be the same person, as in this case with Mr. Privilege and Mr. Needy.

Essentials of a bill of exchange include the date, amount, name and address, term, and signature.

The amount in a bill of exchange must be stated both in figures and words.

Time bills have a fixed period after which they are due, while demand bills are payable on sight.

Stamps are required for time bills, with the value depending on the bill's amount as fixed by the government.

The payee can be a third party to whom the drawer owes money, or it can be the drawer himself.

The phrase 'for value received' implies that the drawer has received value in consideration of the transaction.

Discounting a bill of exchange involves selling it to a bank before its maturity date.

Banks charge a discount rate, typically a percentage of the bill's face value, for discounting services.

The face value of the bill minus the discount amount equals the selling price to the bank.

If a bill is dishonoured, the bank can recover payment from the drawer.

Bills of exchange facilitate trade by allowing transactions without immediate cash involvement.

Bills of exchange are widely used in both domestic and international trade.

Transcripts

Bills of exchange here is a simple story

that will help us understand this of

exchange missiny D is an upcoming

businessman one day mr. needy went to a

shop that belonged to mr. privilege he

wanted to buy some mobile covers mr.

needy

liked the quality and pricing of the

goods I really liked the quality of

mobile covers available video I would

like to buy 5000 mobile covers what's

their cost the cost would be around 50

thousand sir I do not have rupees fifty

thousand right now to pay for the mobile

covers so will you give the mobile

covers on credit

I need a time period of three months to

repeat today is first of me I will

repeat the amount by 1st of August well

I do not need money immediately I think

that I should consider the offer how can

I trust that you will repay me on the

stated date I will need some security

why I will give you in writing that I

will definitely repay you in three

months use that as a legal document to

take action against me if I do not

repeat your loan mr. needy right now you

are making a request later I will have

to beg for my own money

oh no you can order me to pay you after

three months okay I agree to give you

the mobile covers on credit

mr. privilege now takes a blank paper

and writes on it the amount of credit he

is giving to mr. needy the city and the

country they are in the date of drawing

it the time period after which mr. needy

will repay the loan the person whom mr.

needy will repay the loan by order and

not by request the amount to be repaid

in worth for the value of mobile cover

spot

mr. privilege writes down his own name

and address and mr. Neary's name and

address

then mr. privilege put system and

signs the paper well what mr. privilege

has drawn here is known as a bill of

exchange acceptance of bill of exchange

every bill of exchange must be accepted

by the Droid or mr. neary because before

the acceptance a bill has no legal

sanctity a bill is accepted when the

droid

signed his name across the face of the

bill together with place and date

parties to a bill of exchange generally

there are three parties to a bill of

exchange first is the draw that is the

person who draws the bill of exchange

second is a droid that is the person on

whom the bill of exchange is drawn third

is the piece that is the person who has

the right to receive the amount of the

bill in this case the drawer and the

plane are the same when the draw has

made the bill payable to himself the

draw is the P in other cases the drawer

and the paid may be different pay can

also be a person to whom mr. privilege

owes money and in this case the pay is

mr. proud essentials of a bill of

exchange a bill of exchange must contain

the following details date the date of

the bill must be stated correctly the

date of maturity is calculated three

months after the date of drawing amount

the amount is written on the left hand

top corner of the bill in figures it is

again stated in words in the body of the

bill the amounts must be the same both

in figures and words Joyce name and

address the name and address of the draw

are given in the left hand bottom corner

of the bill term the tenure of the bill

is mentioned in case of a time bill time

bills are

even after a fixed period of time in

case of Adam and will or a site with

after sight words are written this means

that the drawee has to repay the amount

as and when the drawer demands it stamps

in a time bill a stamp has to be affixed

no stamp is needed in a demand bill as

the drawer and the draw are not certain

regarding the payment date the value of

the stamp depends upon the amount of the

bill as fixed by the government the rate

of the stamp varies according to the

value of the bill pay if the draw

himself is the pay the fact is stated in

the bill but if he is not the pig he

mentions a third party's name that is

mr. cloud who he owes money to for value

received as a matter of custom these

words are stated in a bill of exchange

they imply that the drawer has received

the value in consideration of the

transaction on which the bill is drawn

signature the drawer pulls down his

signature on the right hand bottom

corner of the bill discounting of bill

of exchange let us understand what this

means in case mr. privilege needs money

before the maturity date

he will have to discount the bill of

exchange discounted or forbidden means

selling the bill before the due date

to a bank the bank charges discount as

it needs Commission for its service

rendered the bill is sold at less than

its face value let us understand this

better the face value of the bill is

50000 rupees the discount rate charged

in this case is 6% of the face value

thus the discount amount is 3000 rupees

the selling price will then be the face

value minus the dis

out which is equal to 47 thousand rupees

after the bills maturity the bank will

collect the amount of the bill from the

draw on the due date in case the bill is

dishonoured on maturity the bank can

recover the payment from the draw the

bank may read has come the bill with the

Reserve Bank of India whenever it is in

need of money

RBI may see discount the bill at a

certain rate see two percent of the face

value this time the discount amount

comes to one thousand rupees

IV I will give the remaining amount

which is 49 thousand rupees to the bank

for meeting its financial need so

students we learnt what a bill of

exchange is the parties and the

essentials of the bill and also the

process of discounting and rediscounting

Bills of exchange facilitate trade

without the involvement of money due to

which they are used on a large scale in

domestic as well as international trade