BANKING AFFAIRS

Detailed explanation-1: -Discounting of a bill of exchange is a method of short-term financing provided by banks. The bank purchases a trade bill from the payee before the maturity date and pays the bill amount after deducting service charges from it. At the maturity of the bill, the bank recovers the said money from the drawee.

Detailed explanation-2: -Discounting of the bill refers to the encashment of the bill before the date of its maturity. The bank deducts its charges from the bill. The bank shall make the payment of the bill after deducting some interest (called a discount in this case).

Detailed explanation-3: -Discounting of the bills of exchange is an attractive fund based financial service provided by financing companies. Bill discounting has emerged as a profitable business for finance companies and represent a diversification in their activity.

Detailed explanation-4: -A bill of exchange must be in writing. It must be dated and stamped. It has three parties: Drawer, Drawee and Payee. It must be signed by the maker or drawer and payee can also be drawer or vice-versa.