Q:

How does a bill of exchange work?

A:

Quick Answer

A bill of exchange is a three-party, non-interest, written order that is created by the first party, the drawer, and it presents an order for the second party, or the payor, to make a sum payment to a third-party, the payee. If it is a sight bill, the payment is to be made immediately, and if it is a term bill, the payment is set for a future date. The payor accepts the draft by signing it, converting the draft into a post-dated check and a binding contract.

Know More

Full Answer

Bills of exchange are similar to checks and promissory notes, but bills of exchange are transferable. The orders can be drawn up by individuals or banks, and they can bind one party to pay a third party that was not involved in its creation. If a bill of exchange is issued by a bank, they are referred to as bank drafts. Similarly, if a bill is issued by an individual, they are referred to as trade drafts.

At the Geneva Convention in 1930, a uniform law of standards for bills of exchange and promissory notes was set. Bills of exchange must contain all information that is pertinent to the parties involved as well as the payments to be made.

Learn more about Economics

Related Questions

  • Q:

    What is the definition of yield management?

    A:

    Yield management refers to the process of examining and analyzing the actions of consumers in order to set variable prices for a perishable product or service at the maximum amount of profit. Some of the factors considered include buying patterns, timing and price.

    Full Answer >
    Filed Under:
  • Q:

    Why is economics considered a social science?

    A:

    Economics is a social science because it examines the social behavior of human beings with regards to allocation of scarce resources in order to meet the needs of each individual in the society. Economics does not only involve production and distribution of goods and services, but also the human factor.

    Full Answer >
    Filed Under:
  • Q:

    Why do people work?

    A:

    The most compelling reason people work is usually to earn money. However, people also work to engage in a personal passion, to achieve personal fulfillment, to challenge themselves, to grow and to have a place to belong.

    Full Answer >
    Filed Under:
  • Q:

    How does profit sharing work?

    A:

    In most profit sharing programs, companies take a percentage of the annual profits, distribute them to a pool and allocating them to employees who are part of the program. Employers can decide how much to allocate to each individual employee and how they want to structure the payments. Some programs distribute funds as pay bonuses or open accounts that allow employees to collect returns on the funds.

    Full Answer >
    Filed Under:

Explore