What type of draft is drawn on and accepted by a bank, usually limited to 6 months in the US?

What type of draft is drawn on and accepted by a bank, usually limited to 6 months in the US?

• A. Demand draft
• B. Time draft
• C. Bank acceptances
• D. Promissory note

Answer: (C)

The correct answer is a bank acceptance. A bank acceptance is a financial instrument that is created when a draft is drawn on a bank and accepted for payment by that bank. This means that the bank guarantees payment of the draft, which is generally used in international trade. In the United States, bank acceptances are typically limited to a term of six months. This characteristic stems from their nature of being short-term financial obligations, which are utilized to facilitate transactions and provide assurance to parties involved in trade. Bank acceptances arise from the trust and financial backing provided by the bank, which provides the necessary security for sellers or exporters. The feature of being time-limited makes them particularly useful for businesses engaging in international commerce, where the timing of payment can be critical. In contrast, the other options represent different types of financial instruments, which serve other specific purposes. A demand draft requires payment immediately when presented, lacking the time constraint characteristic of bank acceptances. A time draft is similar but does not specifically involve bank acceptance; it simply specifies a future date for payment without the bank's guarantee. A promissory note is a direct promise to pay a specific sum of money, which can be for a longer term and does not involve a bank’s acceptance. Each

The correct answer is a bank acceptance. A bank acceptance is a financial instrument that is created when a draft is drawn on a bank and accepted for payment by that bank. This means that the bank guarantees payment of the draft, which is generally used in international trade. In the United States, bank acceptances are typically limited to a term of six months. This characteristic stems from their nature of being short-term financial obligations, which are utilized to facilitate transactions and provide assurance to parties involved in trade.

Bank acceptances arise from the trust and financial backing provided by the bank, which provides the necessary security for sellers or exporters. The feature of being time-limited makes them particularly useful for businesses engaging in international commerce, where the timing of payment can be critical.

In contrast, the other options represent different types of financial instruments, which serve other specific purposes. A demand draft requires payment immediately when presented, lacking the time constraint characteristic of bank acceptances. A time draft is similar but does not specifically involve bank acceptance; it simply specifies a future date for payment without the bank's guarantee. A promissory note is a direct promise to pay a specific sum of money, which can be for a longer term and does not involve a bank’s acceptance. Each