DO YOU KNOW WHAT NEGOTIABLE INSTRUMENTS ARE?


Earlier business was done mostly using cash but with the opening up of the financial markets, various safe and secure instruments are being used to do monetary transactions. Radical changes came with the rise of negotiable instruments.

In India, the Negotiable Instruments Act, 1881 is responsible for governing NIs.

A negotiable instrument is a signed document that promises a sum of payment to a specified person on demand or at a set time. E.g- cheques, money orders, and promissory notes. For an instrument to be negotiable, it must be signed, with a mark or signature, by the maker of the instrument—the one issuing the draft. This entity or person is known as the drawer of funds. A negotiable instrument can be transferred from one person to another.

Advantage of NIs- The advantage of NIs is that the amount of consideration between the debtor and creditor comes under the assumption.

Characteristics of Negotiable Instruments-

Financial Worth

Transferability

Papers to facilitate payments

Types of Negotiable Instruments

Cheques- payable by the payer’s financial institution upon receipt in the exact amount specified.

Money orders- cash must be received from the payer prior to the money order being issued by the institution.

Traveller’s cheques- generally used when the payer is traveling to a foreign country and is looking for a payment method that provides an additional level of security against theft or fraud while traveling.

Promissory Notes- Promissory notes are documents containing a written promise between parties – primarily enables individuals or corporations to obtain financing from a source other than a bank or financial institution.

Certificate of Deposit- CD is a product offered by financial institutions and banks that allows customers to deposit and leave untouched a certain amount for a fixed period and, in return, benefit from a significantly high interest rate. In case of early withdrawal, a penalty is charged.

Bills of Exchange- These bills direct one person to pay a certain amount to another person, in transactions involving both services and goods.

‘nemo dat quad non-habet’- meaning one cannot transfer anything that does not belong to him in the first place

NOW, go trade and commerce using easy NIs.

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