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Financial center » Сans » Types of banking products - conditions » What is a bill of exchange - characteristics and types (simple and translated)

What is a bill of exchange - characteristics and types (simple and translated)

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  The modern banking system developed a set of ways of calculation. The securities (S) belong to them. Therefore assessment of bills is the integral procedure at turnover of such documents. For determination of cost use several approaches and involve qualified specialists.
To get profit from given the Central Bank and the guaranteed return of money, it is necessary to study the factors influencing their assessment. It is also necessary to be able to reveal signs of the enterprise issuer which acquisition of the bill is fraught with financial risks.

What is the bill?

   This concept designates one of types of securities Central Bank. Its essence is defined by the debt obligation, namely: the drawer guarantees payment of money to other person. The document is processed on the provisions of the law (according to  Federal Law No. 48ot 11 of March, 1997) and contains data on the debtor, the amount of debt, term of its repayment and also specifies the one who is a creditor. The document can be issued by both the physical, and legal entity.
The similar type of registration of a debt is recognized the most convenient as the text of the security contains all necessary information in the form established by the law, so – can be freely realized in financial market.
   Important! One of the main benefits of use of the bill is security: payment in such a way does not provide transfer of money in the natural form.

Types of bills

Types of bills and their characteristic:
    • idle time – represents the standard receipt with the indication of the amount of debt and terms of its return (is formed one copy which is stored at the debtor);
    • translated – grants the right of payment of a debt to the third party most of which often is a bank (two copies are made out).
This type of the Central Bank is used for performing transactions on delivery of a loan. At the same time regardless of a type and characteristic of the bill the maximum term of return of the determined sum of money is 270 days from the moment of execution of the document. Until the end of this period the debtor undertakes to pay the principal amount and interest.
Income can be gained from two sources:
    • from the accrued interest;
    • upon purchase of the paper at the cost, below provided.
Important! Execution of the document will have to take place according to the norms established by the law differently the bill to be considered as invalid.

How much is bill?

    Valuation of the bill is a determination of its actual price in the market where it can be sold on an equal basis with similar documents.
    The amount which can be received for the Central Bank of such category, is defined by the status and reliability of the drawer. I.e. the issuer is larger, the cost of the paper is higher. It is connected with the fact that the big companies are able to pay money and on time. The small organizations and natural persons are in this regard not so reliable.
At assessment the specialists are aimed at establishment of cost of the Central Bank. Also it is necessary to determine the discount size, i.e. a discount on which the buyer can count. Valuation is performed under such circumstances as:
   • registration of a loan;
   • acquisition of the insurance policy;
   • receiving inheritance;
   • deposit (conclusion) to the authorized capital of the enterprises;
   • commission of sale and purchase of objects of property;
   • donation;
   • division of the enterprise.
This document can be used in all situations which mean payment introduction.

What influences the bill price?

Influencing factors for lowering/increase in value include:
    • liquidity which depends on the issuer;
    • competitiveness;
    • price range of similar offers;
    • level of demand and offers.
But the main evaluation criterion – solvency of the bill holder. Whatever amount was specified in the document if his issuer is financially unstable, then all value of paper comes down to zero.

What is considered by appraisers?

    Appraisers are specialists who at the professional level are engaged in determination of cost of material values. For example, resort to their services if necessary to establish the relevant price of a living space at registration of this real estate object as mortgage providing on the credit.
When determining value the specialists pay the main attention accounts departments of the organization bill holder. Are in detail analyzed:
   • level of income;
   • results of audit (the last at the time of the address to appraisers);
   • creditor and debit debts;
   • financial statements;
   • balance sheet for the last 36 months.
  Before carrying out assessment procedure with specialists the official agreement is signed with the obligatory indication of completion dates of service. Activity of professional appraisers is performed on a paid basis that is also noted in the agreement with the indication of exact prices.
As the evaluating result to the bill holder is given the report on the carried-out work.

Approaches for determination of cost of bills

   At establishment of cost the professional appraisers do not use the sample scheme. Each case is considered taking into account a range of transactions in which it is possible to apply concrete the Central Bank:
• at payment of any sort of transactions;
• registration of the inherited property;
• entering into fixed assets of the enterprise, etc.
   Also the general financial position of the enterprise, its liquidity, profit level and a situation in the economic market at the time of assessment is analyzed.
Two ways of determination of value of the bill – comparative and profitable are developed. They differ on an earning profit source – from discount or the accrued interest.

Comparative approach

    As it is clear from the name, the main method is comparison. As objects the similar organizations and the enterprises on which indicators it is possible to equal when determining value of the document act here. Mostly comparative approach is applied in the presence of a discount discount. Assessment of the promissory note is made when using one indicator – its face value.

Income approach

   In this case the registered conditions are analyzed, namely: repayment period and amount of debt. Such method is effective concerning the enterprises of a small rank which constancy of profit is not established yet.
Assessment of the Central Bank of this category from the specific issuer will help to establish their competitiveness in public market that will indicate expediency of acquisition of such papers.
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