Banks offer various types of instruments through which the financial transactions can take place. In our daytime day life, one might have experienced use of deposit slip, withdrawal slip or even cheques but there are other types of instruments which banks do use for transactions and among them, some are public instruments which mean, any account holder could use that instrument for financial transactions.
Before going into details of the banking instruments, one should know about two types instruments.
One is negotiable bank instruments and the other one is nonnegotiable bank instruments.
Negotiable instruments are those instruments which can be transferred from one person to another. Since it is negotiable, it can transferable.
Non-negotiable instruments are those instruments which aren’t transferable from one person to the other and hence, they are specific in nature. This s the main difference between negotiable and non-negotiable instruments where one can be transferred and the other one doesn’t give permission to be transferred.
When we talk about negotiable instruments and there are mainly 4 primary types of instruments which serve their own purpose. Those instruments are cheques, bank draft, bill of exchange and promissory notes.
They are characterized by the fact that, they are freely transferable, unconditional, in writing and payable on demand.
On the other hand, the characteristics of nonnegotiable instruments are that it can be transferred. For example, government bonds are a perfect example of non-negotiable bonds. They can only be redeemed by the owner and others cannot redeem it at any cost.
In our daily life, we use one instrument more than the other. For example, someone will love to deal with cheques but he or she may not be comfortable while dealing with cash. As such, it gives a convenient of not having to carry a lot of money. And since these are written they are generally secured.
Moreover, promissory notes or demand drafts also play a key role in banking instruments. For example, a demand draft guarantees to pay that exact amount to the person/organization whose name is written on the demand draft.
Thus it is the bank instruments which have the power to make economy bigger and more efficient in nature. This kind of instrument plays a pivotal role in the economy. It is these instruments through which transactions can actually take place. Hence, these instruments are the essential part of the financial system of an economy.