Q.15. Write Short Notes.
PROMISSORY
NOTE
The promissory note is one of the
simplest forms of the credit instrument. Section 4 of the Act defines a
Promissory Note as an instrument in writing not being bank note or a currency
note containing an unconditional undertaking signed by the maker to pay a
certain sum of money only to or to the orders of a certain person to the bearer
of the instrument.
Characteristics of a Promissory Note
The essential characteristics of a
promissory note are as follows
i. It is a written document signed as
follows.
ii. It contains an unconditional
promise to pay.
iii. Besides an acknowledgement a
promissory note is an express promise to pay.
iv. Promissory note must always
relate to a definite and certain amount of legal money of the country and not
to foreign money.
v. It should not be a bank note or
currency note.
vi. No particular from is prescribed
for it.
vii. A promissory note is not payable
to the bearer on demand.
viii. The person to whom the promise
is made must be definite person.
DRAFT
A draft is a cheque drawn by one
branch of a bank upon another situated at any other place required to pay a
fixed / certain amount of money to a specified person or by his order. A bank
draft may either by inland or foreign. Drafts are issued by banders after
receiving written and signed applications. The person is required to remit the
required amount of money along with its commission. The banker hands over the
draft to the depositors and sends a credit advice to the branch upon which the
draft is drawn.
Draft are a common media of
transferring money from one place to another. They are of great importance for
financing trade, specially foreign trade. The draft are also known as demand
draft.
LETTER OF
CREDIT
The letter of credit is a request
made by the issuing bank to its correspondent or agent making the request on
demand on any draft on the issuing bank up to the amount mentioned in the
letter of credit. A letter of credit remain enforced for a fixed date only.
They are issued only to the persons who furnish guarantee or securities or make
payment of the full amount there in. The L.C’s are of great significance in
international trade. Specially the importers and exporters frequently use them.
It saves from the trouble of carrying money from place to place with the risk
of loss or theft.
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