Financial Awareness - Risk, Stability & Emerging Finance
In which type of bank advance does the bank purchase bills of exchange before maturity at a discount, providing immediate funds to the holder?
In which type of bank advance does the bank purchase bills of exchange before maturity at a discount, providing immediate funds to the holder?
medium Q14 of 15
Step-by-Step Solution
Step 1: Understand the concept of bill discounting
Bill Discounting is when banks buy bills of exchange before maturity at a discount, giving immediate funds.Step 2: Eliminate other options
Term Loan is for fixed period capital expenditure, Cash Credit is working capital loan, Demand Loan is repayable on demand, none involve purchasing bills.Final Answer:
Bill Discounting → Option BQuick Check:
Bill Discounting = bank buys bills before maturity at discount ✅
Quick Trick: Bill Discounting = early payment by bank for bills.
Common Mistakes:
- Confusing Bill Discounting with Cash Credit or Demand Loan.
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