Introduction to Negotiable intruments

Question 1

What is a negotiable instrument?

Answer 1

It is a written document that is used as a substitution for money or is used to extend credit eg. a cheque, a promissory note.

Question 2

What are the types of negotiable instruments?

Answer 2

• Promissory notes and certificates of deposit
• Bills of exchange
• Cheques

Question 3

What is a promissory note? and subsequently, what is a certificate of deposit?

Answer 3

A promissory note is a written unconditional document that issued by one party to another promising to pay a specific sum of money on a specific date.

A certificate of deposit is a type of promissory note, issued by a bank confirming that they have received a specific sum of money to be given to a specific individual on demand.

Question 4

What is a bill of exchange?

Answer 4

It is an unconditional written document issued by one person (Drawer) to another person (the drawee) to pay a specific sum of money to an identified individual (Payee ) either on demand or at a particular date.

Question 5

What is a cheque?

Answer 5

It is a type of bill of exchange where the drawee is a financial institution. Here a member of a commercial bank issued a written unconditional document ordering the back to pay an identified individual a specific sum of money either on demand or at a fixed date.