Chapter 9 - Bill Of Exchange (Trade Bill), Objective Type Questions.
Answer the following question in one sentence only.
What is bill of exchange?
ANSWER:
A bill of exchange is an instrument in writing containing an unconditional order signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.
Answer the following question in one sentence only.
Who is Drawer?
ANSWER:
A person who writes or draws up a bill is known as drawer. He is the seller or the creditor entitled to receive money from someone. The bill of exchange is signed by the drawer of the bill.
Who is Drawee?
ANSWER:
The person on whom a bill is drawn is known as drawee. He is the purchaser or the debtor liable to pay the amount mentioned in the bill to the drawer. The bill of exchange is accepted by the drawee.
What is the due date of bill?
ANSWER:
The date on which the payment of the bill becomes due is called the due date or the date of maturity. While calculating the due date, it is necessary to add three days to the period of bill. These three days are called "days of grace".
What is an acceptance to bills of exchange?
ANSWER:
A bill is said to be accepted when the drawee of the bill accepts to pay the amount specified in the bill by writing the word "Accepted" on the bill and then returns it to the drawer.
What is qualified acceptance?
ANSWER:
When a bill of exchange is accepted with some alterations in relation to the original terms of the bill, such as time, place, amount, parties or any condition to the order of the drawer, it is called qualified acceptance.
When is the bill said to be honoured?
ANSWER:
When the amount specified in the bill of exchange is paid by the acceptor (i.e. the drawee) on the due date, it is called the honouring of the bill.
When is the bill said to be dishonoured?
ANSWER:
When the acceptor of the bill refuses to pay the amount of the bill on the date of maturity, the bill is said to be dishonoured.
What is inland bill exchange?
ANSWER:
A bill of exchange drawn and payable within a country is known as inland bill of exchange.
What is foreign bill of exchange?
ANSWER:
A bill of exchange drawn in one country and payable in another is known as foreign bill of exchange.
What are noting charges?
ANSWER:
When a bill is presented for payment and the acceptor fails to make the payment, the bill gets dishonoured. In order to keep a legal proof of such dishonour, the bill gets noted by the Notary Public (who is approved by the government). In exchange for the notary service, the Notary Public charges fees known as noting charges.
When is the amount of bill of exchange payable to a specific person?
ANSWER:
The amount of the bill is payable either on demand or on the expiry of the fixed period mentioned in the bill.
Give word / term or phrase for each of the following statements.
A bill of exchange drawn and accepted for a value received.
ANSWER:
Trade bill
Explanation: A bill of exchange drawn for the amount of purchase by the seller on the purchaser is known as a trade bill.
A person who draws a bill of exchange.
ANSWER:
Drawer
Explanation: He is the seller or creditor entitled to receive money from someone. He writes or draws the bill and is known as drawer. The bill of exchange is signed by the drawer of the bill.
A person on whom a bill of exchange is drawn.
ANSWER:
Drawee
Explanation: The person on whom the bill is drawn, and who is required to pay the amount mentioned in the bill, is called drawee. He is the purchaser or the debtor and is liable to make payment to the drawer.
Payment in accordance with the apparent tenor of the bill.
ANSWER:
Honour
Explanation: When the acceptor of the bill pays the amount specified in the bill on the due date, it is called honouring the bill.
Nonpayment in accordance with the apparent tenor of the bill.
ANSWER:
Dishonour
Explanation: When the acceptor of the bill refuses to pay the amount of bill on the due date or becomes insolvent, it is known as dishonour of the bill.
Acceptance without making any change in the terms of a bill.
ANSWER:
General acceptance
Explanation: When the drawee of the bill accepts the bill by writing the word 'Accepted' and then signs the bill, it is known as general acceptance.
Acceptance with some changes as regards the terms of a bill.
ANSWER:
Qualified acceptance
Explanation: When the terms of a bill of exchange are altered by the acceptor, it is called qualified acceptance. The drawee may refuse to make qualified acceptance.
A bill of which payment to make on fixed period.
ANSWER:
After date bill
Explanation: When a bill is drawn ‘after date’, the term of the bill starts from the date of drawing of the bill. Three days of grace are also allowed on such bills.
The bill which is drawn in one country and payable in other country.
ANSWER:
Foreign bill
Explanation: A bill of exchange drawn in one country and payable in another country is known as a foreign bill of exchange. For example, a bill, drawn in India and payable in USA, is a foreign bill.
Encashment of the bill before the due date.
ANSWER:
Discounting
Explanation: When the holder of a bill needs money before the maturity date, he may present the bill to a bank and get immediate payment on the security of a bill. The bank deducts a certain amount from the face value of the bill and pays the balance. This process is known as discounting.
The person who transfer the ownership of the bill.
ANSWER:
Endorser
Explanation: The holder of a bill has an option to transfer the bill in favour of his/her creditor. In such cases, the person who transfers the bill is known as an endorser. Generally, a drawer is an endorser.
The person in whose favour the bill transferred.
ANSWER:
Endorsee
Explanation: On endorsement, the person in whose favour the bill is transferred (i.e. the holder’s creditor) is known as an endorsee.
The three extra days which are allowed over and above the period of the bill.
ANSWER:
Days of grace
Explanation: The date on which the payment of the bill becomes due is called the due date or the date of maturity. While calculating the due date, it is necessary to add three days to the period of the bill. These three days are known as 'days of grace'.
Transfer of title of the bill from debtor to creditor.
ANSWER:
Endorsement
Explanation: Endorsement means when a bill of exchange is signed for the purpose of transferring it to another person. The debtor signs the bill and transfers it to his/her creditor. On endorsement, the endorsee becomes entitled to receive the payment.
Payment of the bill before the due date.
ANSWER:
Retirement
Explanation: A bill is said to be retired when the acceptor of a bill expresses his willingness to make the payment of the bill before its due date. In such cases, the holder of the bill generally allows a discount to the drawee, which is called rebate. This rebate is a gain for the party that makes the payment (i.e. the drawee) and is expense to the party receiving the payment (i.e. the drawer).
Fees charged by the Notary public on dishonour of a bill.
ANSWER:
Noting charges
Explanation: When a bill is presented for payment and the acceptor fails to make the payment, the bill gets dishonoured. In order to keep a legal proof of such dishonour, the bill is noted by the Notary Public (who is approved by the government). In exchange for the notary service, the Notary Public charges fees known as noting charges.
Officer appointed by the Central Government for noting of dishonour bill.
ANSWER:
Notary Public
Explanation: Notary Public is an officer appointed by the Central or State Government and has the power of noting Negotiable Instruments at the time of their dishonour.
Write True or False
Bill of exchange is an instrument in writing containing an unconditional order.
ANSWER: True
Explanation: A bill of exchange is an instrument containing in writing an unconditional order to pay a certain sum of money only to or to the order of person or bearer of the instrument. It must be signed by the maker, i.e. drawer of the bill.
A bill of exchange is signed by the person on whom it is drawn.
ANSWER: False
Explanation: A bill of exchange is not signed by the person on whom it is drawn (i.e. the drawee). Rather, it must be signed by the drawer (i.e. the maker) of the bill.
A person to whom or as per his order, amount of bill is payable is a Payee.
ANSWER: True
Explanation: The person to whom the amount of a bill is payable is known as a payee. The drawer himself or a third party, such as an endorsee, can be the payee of the bill.
Honour of a bill means payment in accordance with the apparent tenor of the bill.
ANSWER: True
Explanation: A bill is said to be honoured when the acceptor of the bill makes payment on the due date specified in the bill.
Acceptance without making any change in the terms of a bill is called general acceptance.
ANSWER: True
Explanation: When a bill of exchange is accepted without altering the terms of the bill, it is known as general acceptance, whereas when the terms of a bill of exchange are altered, it is known as qualified acceptance.
Acceptance with some change as regards the terms of a bill general acceptance.
ANSWER: False
Explanation: When acceptance is received with some changes in the terms of a bill, it is known as qualified acceptance. However, when a bill of exchange is accepted without altering the terms of the bill, it is known as general acceptance.
A bill of which payment to make on fixed period is after date bill.
ANSWER: True
Explanation: When a bill is drawn ‘after date’, the term of the bill starts from the date of drawing of the bill. Three days of grace are also allowed on such bills. For example, a bill of exchange drawn on January 23, 2014 is payable 2 months after date. The due date of the bill after adding the days of grace will be March 26, 2014.
Drawee is a person who holds the title of the bill in due course.
ANSWER: False
Explanation: Drawee is the person on whom the bill is drawn and who accepts the bill by writing the word 'Accepted' on it. Any subsequent holder of the bill, who holds the bill in good faith and exchanges something valuable for it, is known as the holder in due course.
The inland bill which is drawn in and payable in the same country.
ANSWER: True
Explanation: An inland bill is a bill that is drawn and made payable in the same country. On the other hand, a bill that is drawn in one country and made payable in another is known as foreign bill.
Discounting means encashment of the bill before the due date.
ANSWER: True
Explanation: When the holder of a bill needs money before the maturity date, he may present the bill to a bank and get immediate payment on the security of the bill. The bank deducts a certain amount from the face value of the bill and pays the balance. This process of getting the bill en-cashed before its due date is known as discounting.
Drawee can transfer the ownership of the bill.
ANSWER: False
Explanation: A drawee cannot transfer the ownership of a bill. The drawer or the holder of a bill can transfer the bill of exchange by signing the bill of exchange, i.e. by endorsement.
Endorsee is person in whose favor the bill transferred.
ANSWER: True
Explanation: On endorsement, the person who transfers the bill is known as endorser and the person in whose favour the bill is transferred is known as endorsee.
Endorsement means transfer of title of the bill from debtor to creditor.
ANSWER: True
Explanation: Endorsement means signing the bill for the purpose of transferring it to another. Hence, it can be transferred from debtor to creditor.
Retirement of bill means payment of the bill before the due date.
ANSWER: True
Explanation: When the drawee makes the payment of the bill before its due date, it is known as retiring the bill. In such cases, the holder of the bill usually allows discount, which is known as rebate.
Noting charges are payable to the Notary public on honour of a bill.
ANSWER: False
Explanation: Noting charges are paid to the Notary Public, who makes a note of the fact that the acceptor has refused to make the payment on the bill of exchange, i.e. the bill has been dishonoured.
Payee is official person appointed by the Central government for noting of dishonour bill.
ANSWER: False
Explanation: A Notary Public is the official person appointed by the central government for noting a bill. He makes a note of the dishonour, i.e. when an acceptor refuses to make the payment. On the other hand, a payee is the person to whom the payment is to be made. A drawer or any other third party can be the payee to a bill of exchange.
Renewal is a request by drawee to extend the credit period of the bill.
ANSWER: True
Explanation: Sometimes, the acceptor of a bill is unable to meet the bill on its due date. In such cases, he might request the holder of the bill to cancel the original bill and draw a new bill in place of the old one. This is known as renewal of bill.
A bill can't be deposited into bank for collection.
ANSWER: False
Explanation: The drawer of a bill can send the bill to its bank with clear instructions to retain the bill and realise the amount of the bill on its due date. This is termed as bill sent to the bank for collection. Also, in the case of bills discounted with bank, the bank becomes the payee and is entitled to receive the amount on the due date.
