Negotiable Instruments

Created By: Laura Kinchen

What is a negotiable instrument?

A written order or promise to pay a sum of money, either to a specified party or to the person who holds it.

Negotiable means transferable

Negotiable Instrument

A check, like money, is a medium of exchange.

The negotiation that goes on refers to the transfer of the instrument from one party to another

Examples of Negotiable Instruments

Checks

Drafts

Bills of exchange

Some types of promissory notes

Winning Lottery Tickets, Certificates of Deposit, Bonds, Treasury bills

Checks

Most common form of negotiable instrument

Offer:Convenience for writer and recipientRelatively high degree of safetyRecord of transaction

Drafts

Three-party instrument like a check, but there are other forms

An order signed by one party (payer/drawer) that is addressed to another party (drawee) directing the drawee to pay to someone (payee) the amount indicated on the draft

Drafts

Most drafts are used for the purchase of goods and services when the transaction goes beyond the bounds of the U.S. banking law

Bills of Exchange

Negotiable and unconditional written order, such as a check, draft or trade agreement, addressed by one party to another

Common form of internationally negotiable instruments

Promissory Notes

Written promise to pay at a fixed or determinable future time a sum of money to a specified individual