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.