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    Bills Discounting

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    Chintan Joshi
    This document discusses bills discounting and bills of exchange. It provides details on: 1) Bills of exchange are trade-related instruments that represent an unconditional order by a maker to pay a certain sum of money to a payee or bearer. 2) There are different types of bills including demand bills, usance bills, and documentary bills. 3) Bills of exchange are created when a seller draws a bill on a buyer with a given maturity after selling goods on credit. The seller can then discount the bill with a discounting agency for immediate cash. 4) Discounting agencies provide short-term financing by discounting bills of exchange, earning the difference between the discounted price and face

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    Bills Discounting

    Uploaded by

    Chintan Joshi
    136 views9 pages
    This document discusses bills discounting and bills of exchange. It provides details on: 1) Bills of exchange are trade-related instruments that represent an unconditional order by a maker to pay a certain sum of money to a payee or bearer. 2) There are different types of bills including demand bills, usance bills, and documentary bills. 3) Bills of exchange are created when a seller draws a bill on a buyer with a given maturity after selling goods on credit. The seller can then discount the bill with a discounting agency for immediate cash. 4) Discounting agencies provide short-term financing by discounting bills of exchange, earning the difference between the discounted price and face

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    3342900 Bills Discounting

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    This document discusses bills discounting and bills of exchange. It provides details on: 1) Bills of exchange are trade-related instruments that represent an unconditional order by a maker to pay a certain sum of money to a payee or bearer. 2) There are different types of bills including demand bills, usance bills, and documentary bills. 3) Bills of exchange are created when a seller draws a bill on a buyer with a given maturity after selling goods on credit. The seller can then discount the bill with a discounting agency for immediate cash. 4) Discounting agencies provide short-term financing by discounting bills of exchange, earning the difference between the discounted price and face

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    136 views9 pages

    Bills Discounting

    Uploaded by

    Chintan Joshi
    This document discusses bills discounting and bills of exchange. It provides details on: 1) Bills of exchange are trade-related instruments that represent an unconditional order by a maker to pay a certain sum of money to a payee or bearer. 2) There are different types of bills including demand bills, usance bills, and documentary bills. 3) Bills of exchange are created when a seller draws a bill on a buyer with a given maturity after selling goods on credit. The seller can then discount the bill with a discounting agency for immediate cash. 4) Discounting agencies provide short-term financing by discounting bills of exchange, earning the difference between the discounted price and face

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 9

    BILLS DISCOUNTING

    Prof. Sarbesh Mishra, Finance Area.

    Bills of E chan!e

    The bill of exchange (B/E) is used for financing a transaction in goods which means it is essentially a trade related instrument. According to Negotiable Instruments Act !""!# $The bills of exchange is an instrument is writing containing an unconditional order signed by the ma%er directing a certain &erson to &ay a certain sum of money only to or to the order of a certain &erson or to the bearer of that instrument'.

    T"#es of Bills
    !. +. ..

    /.

    (emand Bill ) *ayable immediately on &resentment to em&loyee. ,sance Bill ) Time &eriod recogni-ed for &ayment of bills. (ocumentary Bill ) These B/E are accom&anied by documents that confirm trade has ta%en &lace. 0lean Bills ) These Bills are not accom&anied by any documents. Interest rate charged is higher than documentary bill.

    Crea$ion of B%E

    Two &arties i.e. seller sells goods or merchandise to a buyer. 1eller would li%e to be &aid immediately but buyer would li%e to &ay after sometime. 1eller draws a B/E of a gi2en maturity on the buyer. 1eller (0reditor) becomes drawer of the bill and buyer ((ebtor) becomes drawee of the bill. 1eller sends the bill to buyer for his acce&tance. Acce&tor may be buyer himself or third &arty.

    Disco&n$in! of B%E
    3older of an acce&ted B/E has two o&tions +. 3old on to B/E till maturity and then ta%e the &ayment from the buyer. .. (iscount the B/E with discounting agency. The act of handing o2er an endorsed B/E for ready money is called discounting the B/E. The margin between the ready money &aid and face 2alue of the bill is called the discount

    Con$'(.
    The maturity of a B/E is defined as the date on which &ayment falls due. Normal maturity &eriods are .4 54 64 or !+4 days. Bills maturing within 64 days are most &o&ular. (iscounting agencies are ban%s NB70 com&any high net worth indi2iduals etc.

    A')an$a!es $o in)es$ors
    1hort8term source of finance. 1ince it is not lending no tax at source is deducted while ma%ing the &ayment charges which are 2ery con2enient. 9ates of discount are better than those a2ailable on I0(s. 7lexibility not only in the :uantum of in2estments but also the duration of in2estments.

    A')an$a!es $o Ban*s

    1afety 7unds ) B/E is a negotiable instrument bearing the signature of two &arties considered good for the amount of bill so he can enforce his claim easily. 0ertainty of *ayment ) A B/E is a self li:uidating asset with the ban%er %nowing in ad2ance the date of its maturity. *rofitability ) The discount on bill is front ended the yield is much higher than in the other loans and ad2ances where interest &aid :uarterly or half yearly.

    Con$'(.

    E2ens out inter8ban% li:uidity &roblem ) The de2elo&ment of healthy &arallel bill discounting mar%et would ha2e stabili-ed the 2iolent fluctuations in the call money mar%et as ban%s could buy and sell bills to e2en out their li:uidity mismatches.

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