Question

__________ is the procurement of cash from a bank in exchange for credit instruments.

• A. Discounting of bills
• B. Installment credit
• C. Factoring
• D. Bank overdraft

Answer 1

Answer: (A)

Discounting of bills

1. When a drawer (person selling goods and drawing a bill) draws a bill to drawee (person who buys goods and receives bill) but drawer does not want to wait till the due date and is in need of money, then he may sell such bill to bank at certain rate of discount.

2. The bill will be endorsed (countersigned) by the drawer to the bank. Hereafter, the bank will become the holder and owner of such bill.

3. After getting the bill, the bank will pay a cash to the drawer equal to face value less discount at an agreed rate for number of days it has to run.

4. This whole process is called as Discounting of Bills.