International finance-13
A Bills of Exchange can be defined as a type of written order or notice meant for international trades that binds one party to pay a definite amount of money to another party on demand or at a pre-decided date. A Bills of Exchange is mostly used in international trade to help importers and exporters fulfill transactions. A Bills of Exchange is different from a contract but can be used by the involved parties to specify the terms and conditions of a transaction, such as the credit terms and the rate of accrued interest. There are basically three parties that may be involved with a Bills of Exchange transaction namely: Drawee, Drawer, and Payee.
●Drawee: Drawee is the party that pays the amount stated on the Bills of Exchange to the payee.
●Drawer: The drawer is the party that makes the drawee pay a third party or the drawer can be paid by the drawee.
●Payee: The payee is the party that is paid the amount specified on the Bills of Exchange by the drawee.
Bills of Exchange can be defined as a financial instrument that is short-term and negotiable and consists of an order in writing. This written order is essentially used in international trade where one party is bound to pay a fixed amount of money (either on-demand or at a predetermined rate) to another party.
*The different parts of the Bills of Exchange are:*
The Seller of goods who writes the Bills of Exchange. The instrument is addressed to the buyer.
The buyer must pay the Seller on demand (a sight draft) or at a fixed, determinable time in the future (also called time draft).
A specific sum of money that the buyer owes to the Seller.
Bills of Exchange are also known as the draft. The term Bills of Exchange can also be applied to other instruments of foreign exchange. Some of those include traveler’s checks, express orders, cable and mail transfers, postal money orders and letters of credit.
*Essentials Elements of a Bills of Exchange*
The essential elements of a Bills of Exchange are:
●A Bills of Exchange should always be a written document.
●Bills of Exchange must be dated and stamped.
●A Bills of Exchange must be signed by the maker or drawer.
●The Bills of Exchange must clearly mention the name of the drawer.
●The order for the Bills of Exchange must be an unconditional one.●A Bills of Exchange must have an order to pay money and not goods.
●The sum payable for the Bills of Exchange must be specified.
●The money for the Bills of Exchange must be payable to a definite person or to his order or to the bearer.
●The amount for the Bills of Exchange should be paid within a stipulated time.
●A Bills of Exchange must have adequate stamp duty at the prescribed rate.