What is a financial instrument that represents a promised future payment from a bank?
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Provides FundsThe Money Market Instruments help to provide short-term funds to the private and public institutions who need finance for their working capital requirements. These funds are provided by discounting the trade bills through commercial banks, brokers, discount houses, and acceptance houses. Therefore, the money market instruments, in turn, can help the development of trade, industry and commerce within and outside the country. Use of Surplus FundsMoney market instruments provide opportunity to the banks and financial institutions to use their surplus funds profitably for a small period of time. They include commercial banks as well as large non-financial corporations, states and other local governments. No need to borrow from banksIn case of a developed money market, there is no need to borrow money from commercial and central bank. However, if there is a short of cash requirement, they can call in some of their loans from the money market. Also, the most of the commercial banks would rather prefer to recall their loans than recalling it from the central banks at a higher rate of interest. Helps GovernmentThe money market instruments prove helpful to the government in borrowing short-term funds on the basis of treasury bills at low interest rates. Besides, it would lead to inflationary pressures in the economy if the Government had to issue paper money or borrow from the central bank. Helps in Monetary PolicyThe existence of a well-developed money market will help in successfully implementing the monetary policies of central bank. Is only through money market the central banks can control the banking system and therefore Influence commerce and the industry. Helps in Financial MobilityThe Monet market helps in financial stability by smoothening the transfer for funds from one sector to another. And, financial mobility is important for the development of commerce and industry. Promotes Liquidity and SafetyApart from encouraging savings and investments, the money market instruments promote liquidity and safety of financial assets. Equilibrium between Demand and Supply of FundsThe money market brings a balance between the demand and supply of loanable funds by allocating saving into investment channels. Economy in Use of CashThe money market instruments deal with assets which are not cash but equivalent to cash and thus help in economizing the use of cash. And hence it can be considered as a convenient way to transfer funds from one place to another. Is an instrument representing a promised future payment by a bank?A banker's acceptance is an instrument representing a promised future payment by a bank. The payment is accepted and guaranteed by the bank as a time draft to be drawn on a deposit. The draft specifies the amount of funds, the date of the payment (or maturity), and the entity to which the payment is owed.
Is a check a financial instrument?Some common financial instruments include checks, which transfer money from the payer, the writer of the check, to the payee, the receiver of the check.
What is a bank accepted Bill?Banker's acceptance (BA) is a negotiable piece of paper that functions like a post-dated check. A bank, rather than an account holder, guarantees the payment. Banker's acceptances (also known as bills of exchange) are used by companies as a relatively safe form of payment for large transactions.
Is a banker's acceptance a money market instrument?A banker's acceptance is a money market instrument and, like most money markets, it is relatively safe and liquid, particularly when the paying bank enjoys a strong credit rating. The bank carries primary responsibility for the payment.
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