When a trade bill is also accepted by a bank, it is known as a ______.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → commercial bill
Option (1) commercial paper — Incorrect. Commercial paper is a short-term unsecured promissory note. Large and creditworthy companies issue it to raise short-term funds.
Option (2) certificate of deposit — Incorrect. A certificate of deposit is a short-term instrument in bearer form. It is issued by commercial banks and development financial institutions.
Option (3) commercial bill — Correct. A seller draws a bill on a buyer who bought goods on credit. Once the buyer accepts it, it is a trade bill. When a commercial bank also accepts the trade bill, it becomes a commercial bill.
Option (4) treasury bill — Incorrect. A treasury bill is a short-term borrowing instrument of the Government of India. The Reserve Bank of India issues it on behalf of the Central Government.
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.” |