Bills of Exchange | Bills of Exchange Meaning | What are Bills of Exchange |
Summary
TLDRThe 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
- π Bills of exchange are legal documents used for credit transactions.
- π Mr. Needy, a businessman, wanted to buy mobile covers on credit from Mr. Privilege's shop.
- π A bill of exchange includes the amount of credit, date of drawing, repayment date, and names of both parties.
- π The bill must be accepted by the drawee (Mr. Needy) to have legal validity.
- π₯ 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).
- π The bill must clearly state the date, amount (in figures and words), names, addresses, term, and signature.
- πΈ If the drawer needs money before the maturity date, they can discount the bill with a bank.
- π¦ Discounting involves selling the bill to a bank at less than its face value, with the bank charging a discount rate.
- π The bank can rediscount the bill with the Reserve Bank of India if it needs money.
- π 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
π 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.
π‘ 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.
Mindmap
Keywords
π‘Bills of Exchange
π‘Drawer
π‘Drawee
π‘Payee
π‘Credit
π‘Acceptance
π‘Maturity Date
π‘Discounting
π‘Face Value
π‘Legal Document
π‘Rediscounting
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
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