Consider the following statements about bills used in the money market:
(A) The seller of the goods draws the bill and is called the drawer.
(B) The buyer of the goods accepts the bill and is called the drawee.
(C) A commercial bill is a self-liquidating instrument used to finance the credit sales of firms.
(D) The seller can get a trade bill discounted with a bank if funds are needed before the bill matures.
(E) A trade bill accepted by a development financial institution is known as a commercial bill.
How many of the above statements are correct?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Four
(A) The seller of the goods draws the bill and is called the drawer. — Correct. The seller draws the bill, so the seller is the drawer.
(B) The buyer of the goods accepts the bill and is called the drawee. — Correct. The buyer accepts the bill, so the buyer is the drawee.
(C) A commercial bill is a self-liquidating instrument used to finance the credit sales of firms. — Correct. A commercial bill is short-term, negotiable and self-liquidating, and it finances credit sales.
(D) The seller can get a trade bill discounted with a bank if funds are needed before the bill matures. — Correct. A seller who needs money before the due date can discount the bill with a bank.
(E) A trade bill accepted by a development financial institution is known as a commercial bill. — Incorrect. A trade bill becomes a commercial bill when a commercial bank accepts it. Development financial institutions issue certificates of deposit.
NCERT (Pre-rationalised Edition): “5. Commercial Bill: A commercial bill is a bill of exchange used to finance the working capital requirements of business firms. It is a short-term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms. When goods are sold on credit, the buyer becomes liable to make payment on a specific date in future. The seller could wait till the specified date or make use of a bill of exchange. The seller (drawer) of the goods draws the bill and the buyer (drawee) accepts it. On being accepted, the bill becomes a marketable instrument and is called a trade bill. These bills can be discounted with a bank if the seller needs funds before the bill matures. When a trade bill is accepted by a commercial bank it is known as a commercial bill.” |