What financial instrument is an order to pay one party through a third party?

What financial instrument is an order to pay one party through a third party?

• A. Drafts
• B. Bank acceptances
• C. Certified checks
• D. Promissory note

Answer: (A)

The financial instrument that represents an order to pay one party through a third party is a draft. A draft is essentially a written order directing a bank or another party to pay a specified sum of money to a designated person or entity. This is commonly seen in transactions involving trade, where the seller might request that a draft be issued to receive payment for goods or services. A key characteristic of drafts is that they involve three parties: the drawer (the person writing the draft), the drawee (the bank or financial institution that will pay the amount specified), and the payee (the person or entity receiving the payment). This tri-party structure is fundamental in creating the obligation to pay through a third party, distinguishing drafts from other financial instruments that may not require such involvement.

The financial instrument that represents an order to pay one party through a third party is a draft. A draft is essentially a written order directing a bank or another party to pay a specified sum of money to a designated person or entity. This is commonly seen in transactions involving trade, where the seller might request that a draft be issued to receive payment for goods or services.

A key characteristic of drafts is that they involve three parties: the drawer (the person writing the draft), the drawee (the bank or financial institution that will pay the amount specified), and the payee (the person or entity receiving the payment). This tri-party structure is fundamental in creating the obligation to pay through a third party, distinguishing drafts from other financial instruments that may not require such involvement.