1.Discuss the notions of negotiable instruments (hint: function, classification, type, definition etc. should be included)
A negotiable instrument is a document that guarantees the payment of a specific amount of money either on demand or at a determined future date. These instruments are used in commercial transactions to facilitate the transfer of funds.
Functions of negotiable instruments:
1. Substitute for money: Negotiable instruments can be used as a substitute for cash in the payment of debts or as a medium for transferring money.
2. Credit facilitation: These instruments enable buyers to purchase goods on credit without needing immediate cash payment. The seller can accept the negotiable instrument as a guarantee of future payment.
3. Transferability: Negotiable instruments can be easily transferred from one party to another, providing convenience in carrying out transactions.
Classification of negotiable instruments:
1. Promissory Notes: These are written promises by a person (promisor) to pay a specific sum of money to another person (payee) at a specified time or on demand. For example, a student borrowing money from a friend and giving a promissory note to repay it within six months.
2. Bills of Exchange: This document involves three parties: the drawer (person issuing the bill), the drawee (person or company obliged to pay), and the payee (person who will receive the payment). It represents an unconditional order from the drawer to the drawee to pay a certain amount on a fixed date. For example, a business owner ordering goods from a supplier and issuing a bill of exchange to pay on a specific date.
3. Cheques: These are orders written by an account holder of a bank instructing the bank to pay a specific amount of money to the person or organization named on the cheque. It is a commonly used negotiable instrument for payment transactions.
Definition of negotiable instruments:
A negotiable instrument is a written document that represents a promise or order to pay a specific amount of money and is transferable by delivery or endorsement. It provides a legal framework for commercial transactions and enables the movement of funds across different parties.
Types of negotiable instruments:
1. Order instruments: These instruments require the payment to be made to a particular person or their order. For example, a cheque made payable to the order of a person.
2. Bearer instruments: These instruments are payable to the bearer or holder of the document. Ownership can be transferred simply by delivering the instrument. For example, a cheque made payable to cash.
In conclusion, negotiable instruments serve as financial tools facilitating the transfer of funds and credit exchange between parties. They can be classified into different types, such as promissory notes, bills of exchange, and cheques, based on their specific characteristics and functions.