📖 Comprehensive Note
Credit instruments are written documents that acknowledge and facilitate the transfer of money, credit, or debt obligations. They are used in trade, banking and finance to create enforceable promises or orders to pay. Key instruments covered here:
- Bill of Exchange (List of exchange): A written order by one party (drawer) directing another party (drawee) to pay a fixed sum to a payee at a stated future date. Common in international trade.
- Promissory Note: A written, unconditional promise by one party (maker) to pay a specified sum to another (payee) either on demand or at a fixed future date.
- Bond: A debt security issued by governments or corporations; bondholders are creditors paid interest and principal at maturity.
- Bank Draft: A bank's order to pay a certain sum to a beneficiary; more secure than personal checks because the bank guarantees payment.
- Lease Agreement: A contract where one party (lessor) grants another (lessee) the right to use an asset for a specified period in exchange for rent — often used as a form of credit for assets.
- Trading Cheque: A negotiable instrument ordering a bank to pay a specific amount from the account holder to the person named on the cheque or bearer.
- Debenture: An unsecured long-term debt instrument backed by the issuer's creditworthiness rather than collateral; common for corporate borrowing.
Note: Terminology and legal details vary by jurisdiction; always consult local law for enforceability and formal requirements.
🎤 Lyrics + Audio
Straight to the list of
credit Instruments
List of exchange,
promissory note,
bond — oh oh oh oh oh!
Bank draft,
lease agreement, trading cheque,
debenture — sing along!
00:00 / 00:00
📊 Line-by-Line Study Guide
| Lyric Line | Explanation |
|---|---|
| List of exchange / Bill of Exchange | A written order to pay; commonly used in trade to instruct payment at future date. |
| Promissory note | A direct promise to pay; simpler than bills, often used for short-term lending. |
| Bond / Debenture | Long-term securities: bonds often secured by assets; debentures are typically unsecured but backed by credit. |
| Bank draft | Bank-guaranteed payment instrument; safer than a personal cheque. |
| Lease agreement | Contractual credit-like arrangement for using assets while paying over time. |
| Trading cheque | Order to bank to pay from drawer's account to payee; negotiable and common in commerce. |
💡 Mnemonic
"B P B B L T D" — Bill, Promissory, Bond, Bank draft, Lease, Trading cheque, Debenture. (Say: "Big People Buy Big Lots To Decorate")
❓ Quiz (10 questions)
1. Which instrument is an unconditional written promise to pay a certain sum?
2. A bill of exchange involves which three parties typically?
3. Which instrument is usually guaranteed by a bank and considered very secure?
4. Which of these is a negotiable instrument ordering a bank to pay a certain sum from the drawer’s account?
5. Debentures differ from secured bonds because they are usually:
6. A lease agreement is best described as:
7. Which instrument is primarily used by corporations or governments to raise long-term capital?
8. Which statement is true about bills of exchange?
9. Which instrument creates a direct obligation on the issuer to pay interest and principal at stated times?
10. Which of the following is NOT typically a credit instrument?
🃏 Flashcards (10)
Q1: What is a Bill of Exchange?
A written order by the drawer instructing the drawee to pay a specified sum to the payee at a future date.
Q2: Define Promissory Note.
An unconditional written promise by the maker to pay a specific sum to the payee on demand or at a future date.
Q3: What is a Bond?
A long-term debt security where issuer promises to pay interest and principal at maturity.
Q4: What makes a Bank Draft secure?
It's drawn by a bank on itself and payment is guaranteed by the bank, reducing default risk.
Q5: What is a Lease Agreement?
A contract allowing use of an asset for a period in return for periodic payments (rent).
Q6: What is a Trading Cheque?
A negotiable instrument ordering a bank to pay a certain sum from the drawer’s account to the payee.
Q7: What is a Debenture?
An unsecured long-term debt instrument relying on issuer's creditworthiness rather than specific collateral.
Q8: Can bills of exchange be transferred?
Yes — they are negotiable and can be endorsed and transferred to others.
Q9: Who is the drawer on a bill of exchange?
The party who writes/orders the bill and instructs another to pay.
Q10: Why use credit instruments in trade?
They formalize payment obligations, facilitate credit, reduce risk, and improve negotiability in commerce.
🎯 Drag & Drop
Match each instrument (left) with the correct short description (right). Drag the instrument into the matching box.
Instruments
Bill of Exchange
Promissory Note
Bank Draft
Bond
Debenture
Lease Agreement
Trading Cheque
Descriptions
A bank-guaranteed order to pay a beneficiary
Negotiable order to pay from drawer’s bank account
Written order directing drawee to pay payee at future date
Unconditional promise by maker to pay specified sum
Long-term debt security promising interest and principal
Unsecured corporate debt relying on issuer credit
Contract granting use of asset in exchange for rent
Tip: Drag each instrument to the description you think matches.
📌 Summary
- Credit instruments formalize financial obligations and facilitate trade and lending.
- Know the main types: bill of exchange, promissory note, bond, bank draft, lease, trading cheque, and debenture.
- Each instrument has distinct legal features: negotiability, guarantee, security, maturity, and transferability.