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Various Types of Banking Instruments

Banks offer various types of instruments through which the financial transactions can take place which are negotiable and nonnegotiable banking instruments.

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Various Types of Banking Instruments

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  1. Let's Talk about Various Banking Instruments

  2. Banks offer various types of instruments through which the financial transactions can take place. • In our daytime day life, one might have encountered use of deposit slip, withdrawal slip or even checks but there are other types of instruments which banks do use for transactions and among them, some are open instruments which mean, any account holder could use that instrument for financial transactions.

  3. Before going into details of the banking instruments, one should think about two types instruments. • One is negotiable bank instruments and the other one is nonnegotiable bank instruments. • Negotiable instruments are those instruments which can be transferred from one person to another. Since it is negotiable, it can transferable.

  4. Non-negotiable instruments are those instruments which aren't transferable from one person to the other and hence, they are specific in nature. • This s the main difference between negotiable and non-negotiable instruments where one can be transferred and the other one doesn't give permission to be transferred. • When we talk about negotiable instruments and there are mainly 4 primary types of instruments which serve their own purpose.

  5. Those instruments are checks, bank draft, bill of exchange and promissory notes. • They are characterized by the fact that, they are uninhibitedly transferable, unconditional, in writing and payable on demand. • On the other hand, the characteristics of non-negotiable instruments are that it can be transferred. For example, government bonds are a perfect example of non-negotiable bonds.

  6. They can only be redeemed by the owner and others cannot redeem it at any cost. • In our daily life, we use one instrument more than the other. For example, someone will love to deal with checks but he or she may not be comfortable while dealing with cash. • As such, it gives a convenient of not having to carry a lot of money. And since these are written they are generally secured.

  7. Moreover, promissory notes or demand drafts also play a key part in banking instruments. • For example, a demand draft guarantees to pay that exact amount to the person/organization whose name is written in the demand draft. • Thus it is the bank instruments which have the power to make economy greater and more efficient in nature.

  8. This kind of instrument plays a pivotal part in the economy. • It is these instruments through which transactions can actually take place. • Hence, these instruments are the essential part of the financial system of an economy.

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