XII Banking - Question 15 - Short Notes

Q.15. Write Short Notes.




PROMISSORY NOTE
The promissory note is one of the simplest forms of the credit instrument. Section 4 of the Act defines a Promissory Note as an instrument in writing not being bank note or a currency note containing an unconditional undertaking signed by the maker to pay a certain sum of money only to or to the orders of a certain person to the bearer of the instrument.


Characteristics of a Promissory Note

The essential characteristics of a promissory note are as follows

i. It is a written document signed as follows.

ii. It contains an unconditional promise to pay.

iii. Besides an acknowledgement a promissory note is an express promise to pay.

iv. Promissory note must always relate to a definite and certain amount of legal money of the country and not to foreign money.

v. It should not be a bank note or currency note.

vi. No particular from is prescribed for it.

vii. A promissory note is not payable to the bearer on demand.

viii. The person to whom the promise is made must be definite person.




DRAFT
A draft is a cheque drawn by one branch of a bank upon another situated at any other place required to pay a fixed / certain amount of money to a specified person or by his order. A bank draft may either by inland or foreign. Drafts are issued by banders after receiving written and signed applications. The person is required to remit the required amount of money along with its commission. The banker hands over the draft to the depositors and sends a credit advice to the branch upon which the draft is drawn.

Draft are a common media of transferring money from one place to another. They are of great importance for financing trade, specially foreign trade. The draft are also known as demand draft.




LETTER OF CREDIT
The letter of credit is a request made by the issuing bank to its correspondent or agent making the request on demand on any draft on the issuing bank up to the amount mentioned in the letter of credit. A letter of credit remain enforced for a fixed date only. They are issued only to the persons who furnish guarantee or securities or make payment of the full amount there in. The L.C’s are of great significance in international trade. Specially the importers and exporters frequently use them. It saves from the trouble of carrying money from place to place with the risk of loss or theft.