When the buyer accepts a bill of exchange drawn by the seller, the bill becomes a marketable instrument and is called a ______.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → trade bill
Option (1) trade bill — Correct. The seller (drawer) draws the bill and the buyer (drawee) accepts it. Once accepted, the bill becomes a marketable instrument called a trade bill.
Option (2) commercial bill — Incorrect. A trade bill becomes a commercial bill only when a commercial bank accepts it. Here only the buyer has accepted it.
Option (3) treasury bill — Incorrect. A treasury bill is issued by the RBI on behalf of the Central Government. A seller does not draw it.
Option (4) promissory note — Incorrect. A promissory note is the form in which treasury bills and commercial paper are issued. A bill drawn by the seller is a bill of exchange.
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.” |