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1. INTRODUCTION

A credit instrument is a term used in the banking and finance world to describe

any item agreed upon that can be used as currency. Credit or loan is the act of

giving money, property or other material goods to another party in exchange for

future repayment of the principal amount along with interest or other finance

charges. Just about all individuals and businesses make use of some type of

credit instrument on a daily basis. Although credit itself is intangible, in actual

practice it assumes a distinct shape. The ability to use a credit instrument

instead of currency rests in the fact that debtor and the recipient agree upon the

use of the instrument and there is a reasonable expectation that the alternate

form of payment will be honoured. Credit instruments may be broadly defined

as evidence of obligations between the individuals who are parties to them. Any

item can serve as a credit instrument, so long as both parties (the borrower and

the lender) have agreed on the use of that instrument. The instrument is

basically a promise by the debtor that he/she will pay back the debtor. Credit

Instruments generally in use are cheques, bills of exchanges, bank overdraft etc.

One of the earliest forms of a credit instrument is the cheque which is

utilized by consumers as a legitimate means of paying for goods and services

received. The value of the check is underwritten by funds that are placed in a

bank account. Upon the presentation by the recipient of the credit instrument,

the bank deducts the specified amount as recorded on the check by the debtor.

While the check is no longer the main credit instrument employed in many

financial transactions, it remains in use by many businesses and individuals.

The credit card is another example of a common credit

instrument. Essentially, the seller is extending credit to the buyer with the

assumption that the company issuing the card will cover the amount of the

purchase. In turn, the issuer of the credit card is anticipating that the cardholder

will eventually pay off the amount of the debt along with applicable interest and

finance charges. Credit instruments are ever popular due to their convenience by

not having you carry around piles of cash everywhere you go.

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2. FEATURES OF A CREDIT INSTRUMENT:

1. It is a written evidence of the existence of an obligation on the part of the

debtor, or a claim on the part of the creditor.

2. It shows the degree of risk that confronts the creditor with respect too the

collection of the debt.

3. It shows the nature of the debtor-creditor relationship.

3. FUNCTIONS OF CREDIT INSTRUMENTS:

1. Written documents make claims enforceable. The credit instrument enables

the creditor to hold the host instrument to collect from his debtor. The debtor on

the other hand is protected of his rights with respect to the amount of the

obligation, interest and maturity date.

2. Credit instruments facilitate exchange transactions. To increase volume

production, producer's farmers, manufacture and merchants avail themselves

credit both use of the proper credit instrument.

3. Credit instrument minimize disputes among the contracting parties. Such

instruments define the extent of the obligations and claims of debtors and

creditors. Once both parties are bound by the same instruments, future disputes

are avoided.

4. Credit instrument facilitates production and consumption. Stocks and bonds

certificates issued by corporations that are engaged in production activities.

Consumers avail themselves of the use of book accounts, instalment and checks

to fulfil their instrument.

4. KINDS OF CREDIT INSTRUMENTS: Basically there are two kinds of

credit instruments

1) Negotiable Instruments

2) Non-negotiable instruments

4.1 Negotiable Instruments:

A negotiable instrument is a document guaranteeing the payment of a specific

amount of money, either on demand, or at a set time. Negotiable instruments are

often defined in legislation. A negotiable instrument is a promissory note, bill of

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exchange or cheque payable either to order or to bearer. A negotiable

instrument means a cheque promissory note and a bill of exchange which are

payable to the bearer of the instrument or the person to be ordered. A negotiable

instrument must be unconditional, written and is to be payable on demand or the

period for the payment which is determined. The four primary commercial types

of negotiable instruments are

1) Promissory note

2) Bills of Exchange

3) Open Book Account

4) The Check

4.1.1 Promissory Note: A promissory note is an unconditional promise in

writing made by one person to another, signed by the maker, engaging to pay on

demand to the payee, or at fixed or determinable future time, certain in money,

to order or to bearer. Referred to as a note payable in accounting, or commonly

as just a ‘note’. Another step in the direction of the credit instrument is taken

when the recipient or buyer of the goods gives to the seller an acknowledgment

that they have been received. This might conceivably be nothing more than a

receipt for the goods - a signed statement that he had received a given number

of bushels of wheat or yards of cloth of a certain kind. Examples of this sort are

seen in the warehouse receipt which plays so important and growing a part in

business to-day.

A cotton warehouse receipt, for example, is merely the acknowledgment

of the warehouse operator that he has received from his customer a given

amount of cotton of a specified grade and is holding it for him. A still further

step is taken when the receipt specifies the value of the goods - B, for example,

certifying to the receipt of a given number of bushels of wheat at Re1 per

bushel. Since in this instance B has acknowledged receiving goods of a

specified value, it is inferred that he has obligated himself to settle for or

liquidate the obligation in an equal amount. A final step may be taken when B

does not specify the kind or character of the goods received, but merely

acknowledges himself to be indebted in a specified amount for "value received."

In this case a full-fledged "credit instrument" has been worked out. It is what is

ordinarily termed a note, and constitutes a legal obligation on the part of B to

pay A a given number of rupees - that is to say, to return to B value which is

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represented by a given sum in dollars, although A may, if he choose, exact an

actual settlement in money.

4.1.2 Bill of exchange: It is a non-interest-bearing written order used primarily

in international trade that binds one party to pay a fixed sum of money to

another party at a predetermined future date. It is a draft written order by the

drawer to the drawee to pay money to the payee. They can be drawn by

individuals or banks and are generally transferable by endorsements. If these

bills are issued by a bank, they can be referred to as bank drafts. If they are

issued by individuals, they can be referred to as trade drafts. Bills of exchange

may be classified according to the party on whom drawn or the time when

payable. If drawn on a person, firm, or corporation, they are called trade bills,

and if on a banking institution, they are described as bankers' bills. They are

termed sight drafts if payment can be demanded on presentation, or at a fixed

time after sight, and time bills if they mature on a specified future date. The

term "acceptance" may have several meanings and therefore requires

explanation. In the first place it may refer to the act of the drawee in writing

across the face of the instrument a formal acknowledgment of the order

addressed to him by the drawer and an agreement to pay the obligation at its

maturity. The term acceptance is also applied to a time bill of exchange which

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has thus been duly accepted. This use of the expression "acceptance" is found in

commercial practice, but is not recognized in law.

4.1.3 Open Book Account: The most elementary type of credit instrument may

be said to be the open book-account. A sells goods to B and debits him with the

value of these goods, or in the current phrase "charges" them to him. A

necessarily carries some kind of account books which, in the event of necessity,

can be produced and which contain entries to show the amount of goods he has

transferred to B. Such books are records, having, of course, only the validity

which they acquire from the fact that they are entries made in good faith at the

time of the transaction to which they refer. Ordinarily they present no evidence

of having been acknowledged by B. Nevertheless, they are in a sense a credit

instrument - that is to say, they are a means of recording or measuring credit, or

of furnishing evidence that it has been extended. The idea becomes more fully

developed when we conceive of both A and B as keeping records, each perhaps

purchasing from the other, and their records, therefore, agreeing substantially

with regard to the amount of goods given and received. If at the end of a fiscal

period they exchange receipted statements, these are evidently elementary credit

instruments, and present on their face evidence that the transaction indicated by

the charges to account has been completed through the transfer of an equal

amount of goods, or through some other form of credit. Such receipted

statements are a derivative of the books of record of the concern, and may be

regarded in an even fuller sense than the former as being credit instruments.

4.1.4 The Cheque: The credit instruments which we have spoken of thus far

have been, as already seen, evidence of obligations growing out of the transfer

of goods between individuals and giving rise to obligations stated either in

terms of goods or in terms of money. There is no reason, however, why the

transaction should not be an operation in money throughout. For example, if A

advances to B a title to money or money itself, he may simply charge B with the

amount on his books, or if B "deposits" money with A, the latter may simply

credit the former with the amount. When a bank does this it enters the amount

thus deposited in a deposit book or bank book which is presumably a duplicate

of B's account as carried on the books of A (in this case the bank), and which

thus acts as a kind of receipt or voucher, or, as we have learned to call it, a

credit instrument. Suppose now that B, desiring to withdraw some of these

funds from the custody of A, directs A to pay them out in cash either to himself

or someone else, or to transfer them on his books to the credit of someone else,

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a written instrument will be needed for this purpose, which is nothing more than

an order to A to pay or transfer the credit obtained by B. This is called a draft or

check. When the transaction in question occurs between an individual (B) and

the bank (A) the term "check" is universally employed, and the check is in the

fullest sense of the term a credit instrument.

4.2 Non-negotiable Instruments:

Non-Negotiable Instruments cannot be transferred or the documents which are

restricted to transfer by the issuer e.g. Money Order, Postal Order, Shares

Certificate etc. Such documents appears at the name of the beneficiary and the

payments are made only to those persons to whom the instruments are made

payable. That may not be transferred from the holder or named party to another.

4.2.1Money order: A money order is a payment order for a pre-specified

amount of money. A money order is purchased for the amount desired. In this

way it is similar to a certified cheque. The main difference is that money orders

are usually limited in maximum face value to some specified figure whereas

certified cheques are not. It is commonly used for transferring funds to a payee

who is in a remote, rural area, where banks may not be conveniently accessible

or where many people may not use a bank account at all. Money orders are the

most economical way of sending money in India for small amounts.

4.2.2 Postal order: A Postal Order is used for sending money through the mail.

Postal Orders are not legal tender, but a type of promissory note, similar to

a cheque.

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5. CLASSIFICATION OF CREDIT INSTRUMENTS

1) Credit Instruments with General Acceptability

2) Credit Instruments with Limited Acceptability

5.1Credit Instruments with General Acceptability:

Credit instruments of general acceptability are those that pass from hand to hand

without question as to their source and which, in effect possess the

characteristics of money. These are the instruments which all the persons

within a country are willing to take in payment for goods or services. The only

credit instrument that meets the qualification of general acceptability is credit

money (bank notes, treasury certificates).

5.1.1 Credit money: Credit money refers to money that constitutes future

claims of a valuable item against an entity. The holder of credit money can use

it to purchase goods and services; when the holder wants to, he or she can

redeem it to get the item by which it is backed. Credit money is made of a

material that has low intrinsic value compared to the value it represents when

exchanged. Some people also consider paper money and coins to be credit

money because they have no intrinsic value and can be exchanged for valuable

commodity. There are many forms of credit money, such as IOUs, bonds and

money market accounts. Virtually any form of financial instrument that cannot

be repaid immediately is considered credit money.

CREDIT MONEY QUALITIES

1) Must be issued by a promissory in whom all the people have

confidence

2) Must be in convenient denominations

3) Easily recognizable

4) Must be difficult to counterfeit

5.2Credit Instruments with Limited Acceptability:

Credit instruments of limited acceptability are those whose acceptance will

depend on the credit standing of the issuer or maker. These credit instruments

are accepted only by few people. These credit instruments are subdivided into

two types: ‘Instruments for Investment Purpose’ and ‘Instruments for

Commercial Purpose’.

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5.2.2 Credit instruments for investment purpose: These are subdivided into

stock certificates, bond certificates and money market bills.

Stock Certificates: It is a legal document that certifies ownership of a specific

number of shares of stock in a corporation. In large corporations, buying shares

does not always lead to a stock certificate (in a case of a small number of shares

purchased by a private individual, for instance). Stock certificates are generally

divided into two forms: registered stock certificates and bearer stock

certificates. A registered stock certificate is normally only evidence of title, and

a record of the true holders of the shares will appear in the stockholder's register

of the corporation.

A bearer stock certificate, as its name implies is a bearer instrument, and

physical possession of the certificate entitles the holder to exercise all legal

rights associated with the stock. Bearer stock certificates are becoming

uncommon: they were popular in offshore jurisdictions for their perceived

confidentiality, and as a useful way to transfer beneficial title to assets (held by

the corporation) without payment of stamp duty. International initiatives have

curbed the use of bearer stock certificates in offshore jurisdictions, and tend to

be available only in onshore financial centres, although they are rarely seen in

practice.

Bond Certificates: A bond in every respect is an instrument of credit. It

possesses practically all the features of a time note, for it is a promise by the

maker to pay interest and principal at a designated time in the future. It is a

promise written in a formal manner, for it is always under seal. As the bond

may have a maturity as long as one hundred years, the maker is usually a

government or a corporation, for neither an individual nor a partnership could

have this expectancy of life. As the amount of the loan may aggregate millions

of dollars, it is obviously impossible to borrow the entire sum from one person,

and so it is divided into smaller denominations, usually of Rs.1000, Rs.500, and

Rs.100 for each bond. It also bears a fixed rate of interest which is generally

payable semi annually.

The bond, the same as any other promissory note, may be either secured

or unsecured. The first type is secured by a mortgage in which the corporation

conveys property to a trustee, who may take steps to sell it for the benefit of

bondholders if the interest or principal is not paid. The corporation may thus

pledge property such as terminals, factories, or stocks and bonds. The unsecured

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or, as it is usually called, the debenture bond, is based upon no tangible assets,

but rests merely upon the general credit standing of the corporation. In the event

of default, holders of such bonds cannot foreclose on any special assets of the

corporation, for their only redress is to bring suit as creditors on notes which

have been unpaid, and so dishonoured.

The degree of negotiability of a bond depends on whether or not it is

registered. A registered bond is payable only to the party whose name is

designated on the instrument and recorded on the books of the corporation. It

can be transferred only by the endorsement of the payee and by the recording of

this assignment on the ledgers of the corporation or its agents. While the

registered bond is thus difficult to negotiate, this very feature may prove

advantageous in case of loss or theft, for payment could then be made only by

forging the owner's name. The unregistered bond is more readily transferred,

since it is payable to bearer and is therefore negotiable merely by delivery.

Interest on the registered bond is paid directly to the party specified, while in

the case of the unregistered bond this disbursement is given to any holder of the

coupons attached to the instrument, and so it is usually called a coupon bond.

Bonds may be registered as to principal and also as to interest. The coupon itself

may be regarded as a promissory note in which the corporation agrees to pay the

holder the interest.

5.2.3 Credit instruments for commercial purposes: These are subdivided into

two types as ‘Promise-to-pay instrument’ and ‘Order-to-pay instrument’.

Promise-to-pay Instruments:

Promissory notes

Open book accounts

Order-to-pay Instruments:

Bill of exchange

Cheque

5.2.4 Credit cards as modern credit instrument

A credit card is a payment card issued to users as a system of payment. It allows

the cardholder to pay for goods and services based on the holder's promise to

pay for them. The issuer of the card creates a revolving account and grants

a line of credit to the consumer from which the user can borrow money for

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payment to a merchant or as a cash advance to the user. Credit cards are issued

by a credit card issuer, such as a bank or credit union, after an account has been

approved by the credit provider, after which cardholders can use it to make

purchases at merchants accepting that card. Merchants often advertise which

cards they accept by displaying acceptance marks –generally derived from logos

– or may communicate this orally. Whenever someone uses a credit card for a

transaction, the card holder is essentially just borrowing money from a

company, because the credit card user is still obligated to repay the credit card

company. Credit card companies generally make money off of credit cards by

charging high interest rates on credit card balances. Credit card issuers usually

waive interest charges if the balance is paid in full each month, but typically

will charge full interest on the entire outstanding balance from the date of each

purchase if the total balance is not paid. A credit card's grace period is the time

the customer has to pay the balance before interest is assessed on the

outstanding balance. Grace periods may vary, but usually range from 20 to 55

days depending on the type of credit card and the issuing bank. Credit cards are

not a wise choice for borrowing a lot of money not only because such offers are

rare but mainly because amounts in the range of Rs 100,000 are allowed against

a mortgage, or at least collateral. So, as it turns out, credit cards are good mainly

for short-term borrowing of small amounts. This might sound like credit cards

have a very limited scope but if you think a little; you will see that short-term

borrowing of small amounts is the most common operation for the majority of

people.

5.2.5 E-money as a modern credit instrument

Electronic money is broadly defined as an electronic store of monetary value on

a technical device that may be widely used for making payments to

undertakings other than the issuer without necessarily involving bank accounts

in the transaction, but acting as a prepaid bearer instrument. Electronic money

differs from other existing forms of money in various ways. The technical

devices upon which electronic money is stored and through which it operates

are either card based (electronic purses, pre-charged cards, chip cards,

contactless cards) or software based products. Software based electronic money

is often operated by non-banking institutions, while card based e-money is

offered by the banking sector. Card based systems are usually organized in a

national level as extensions of the existing infrastructure of the banking system. Electronic money should be kept separate from other single-purpose prepaid

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instruments that use similar technical devices, like phone cards, travel cards or

frequent flyer miles, since e-money is (more) widely acceptable.

In comparison with cash, which uses only physical security features,

electronic money products use cryptography to authenticate transactions and to

protect the confidentiality and the integrity of data. Electronic money no longer

needs to be physically exchanged like banknotes and coins, and thus can be

more easily used for remote payments. In addition, unlike cash, in most

schemes currently available, electronic money received by the beneficiary

cannot be used again. Use of e-money is still in its infancy in comparison with

more mature payments channels, such as checks and direct debits. However

new technology developments and regulatory initiatives around electronic

payments hold the promise of vastly increasing payments traffic through this

channel, particularly in the consumer space. With mobile payments technology

such as Near Field Communications (NFC) advancing rapidly and those in the

payments and mobile space-from system providers to banks to mobile service

providers-pouring resources into its development, this will further push

development of the e-money usage. In addition, modern payments infrastructure

and the rapid increase in mobile penetration in emerging markets may drive e-

money growth in developing countries faster than many developed markets.

6. CREDIT INSTRUMENTS IN INTERNATIONAL TRANSACTIONS

The foreign exchange operations of banks consist primarily of purchase and sale

of credit instruments. There are many types of credits instruments used in

effecting foreign remittances. They differ in speed with which money can be

received by the creditor at the other end after it has been paid in by debtor at his

end. The price or the rate of each instrument, therefore, varies with the extent of

the loss of interest and risk of loss involved. There are therefore, different rates

of exchange applicable to different types of credit instruments.

6.1 Telegraphic or cable transfers

A telegraphic transfer, T.T., is an order for the payment of money sent by

telegraph or cable. The customer purchasing a T.T. pays in the money to the

bank in the currency of his country and the bank informs its foreign

correspondent through currency to a designated payee. As no signature appears

on the instrument which could be compared with the specimen signature of the

sender in the telegraphic instruction, a system of private codes by which the

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genuineness of the instruction can be tested, is used. The cost of the telegram or

cable included by selling bank in the amount recovered or recoverable.

The T.T., obviously the quickest method of transferring money from one

canter to another the payee receives the amount at the foreign canter usually on

the same day as the remitter pays in at the home canter. There is thus no gain or

loss of interest. Moreover, there is no risk of loss of the instrument in transit as

there is no risk of non-payment. Being safe and quick mode of remittance. T.Ts

are the principle means used by banks for transfer of funds from one center to

another for short term investment for making transfer of large amounts on

financial or trade account.

In cable transfers remittance, as in most cases, the beneficiary receives

the payment within the next 24 hours, excluding bank holidays and weekends

and no stamp duties are to be fixed on such transfers. The price paid for such

cable transfer or the rate of exchange quoted is the best possible rate for

purchasing foreign exchange.

6.2 Mail transfers

A mail transfer, or M.T., is like a T.T., an order by a bank to its correspondent

bank but the instructions are sent by mail. Therefore, it takes longer time to

reach destinations, and some time elapses between the purchaser paying for it

and the payee receiving this payment. The selling bank account is not debited

for the payment by the correspondent abroad until the transfer is actually

affected. Thus, there is loss of interest to the purchaser, because he or his

creditor does not have the use of the funds transferred for the period the

instruction takes to be implemented from one center to the other, and a gain of

interest for the bank, since it receives payment but is not debited for some time.

This loss and gain is made up by an allowance in price at which the instrument

is made available for the purchaser. The rate of exchange quoted as units of

home currency per unit of foreign currency is the same in this case as in that of

T.T but he does not pay the cable charges. When the customer does not require

the use of foreign currently immediately, an MT is quite suitable.

An M.T is like cheque in effecting the payment or transfer of funds, but is

not negotiable or transferable. There is no risk of its falling into wrong hands as

in the case of a cheque or a draft. The customer does not have to endorse or

forward it as the selling bank gives instructions to its agents directly.

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6.3 Banker’s drafts or Bankers cheques

A draft or a cheque is drawn by a bank of its foreign correspondents or an office

at the centre where the payment is to be made, and is remitted by the buyer to

one to whom the payment is to be made. The buyer pays the required sum to the

bank, gets the draft, and sends it to the payee. The latter then collects the money

from the drawee bank either directly or through his own bank.

A draft may be drawn in the currency of the country of the payee. In such

a case the drawee bank pays the creditor at its buying rate for drafts on the date

of payment. The buyer, however, may desire to purchase a draft in foreign

currency for the actual amount he has to pay. The draft is then payable at its full

face value without deduction, and is expressed as being 'payable at par'.

6.4 Personal cheques

So far as Indian exchange control is concerned, drawing of personal cheques in

foreign currency by resident Indians is not permitted as an Indian resident

cannot maintain a foreign currency account in his personal name or in joint

names with other individuals without specified approval of RBI. But personal

cheques can be received by him or drawn by a non-resident from his bank

account overseas, the proceeds of which can be collected and credited to the

account of a resident Indian. Keeping in view the problems faced by many

developing countries, private transfer of funds by maintaining a foreign

currency account in that country is under strict exchange control. As a result,

the transfer of funds by use of personal cheques is very limited.

6.5 Letter of credit

Letter of Credits have emerged as a convenient mean of international trade

finance. The LC is a certificate issued by the bank, based on your account

holdings that the applicant will be paying the beneficiary the amount denoted in

the letter. This letter from the bank adds credibility to your business claim,

thereby earning you the much required trustworthiness that is essential in a

business transaction. In transactions, the letter is issued by the buyer’s bank,

stating that the buyer will be paying the seller on adherence to the terms and

conditions of the trade like quality, quantity and turnaround time. The letter is

being pursued as a much safer option than making an advance payment. In

times of urgency, the letter can be even issued on fixed deposits in many banks.

More and more banks are issuing the letter nowadays on behalf of the buyers.

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In international trade finance, overseas buyers are often reluctant to pay

in advance payment. To ensure the security of transactions and to see that the

flow of business is not hindered, various financial instruments like the letter of

credit are employed. Forfeiting and hedging are two such instruments. Two

most commonly used hedging methods are forward contracts and future

contracts. Other instruments include export credit insurance and export credit

guarantee. Some of the unsafe methods of payment guarantees include advance

payment and open accounts. Therefore, these unsafe methods of transaction are

fast replaced by more secure means like the letter of credit or a bank guarantee.

7. USE OF CREDIT INSTRUMENTS

1) All the wholesale transactions of business and a large part of the retail

transactions are completed by the passing of instruments of credit or

negotiable paper, as notes, drafts, checks etc.

2) It is the function of banks to deal with these transferable instruments

legally called titles.

3) The notes, drafts, bills of exchange and bank deposits are representative

of the property passing by title in money from the producers to the

consumers.

4) The trade in instruments of credit amounts to around fifty billions of

dollars yearly.

5) Pay checks in denominations are mostly used.

In addition to these well-defined classes, there were others so varied that but a

suggestion of them can be made - negotiable certificates of deposit ninety day

and other short time paper in currency denominations; bond certificates grain

purchase notes credit and corporation store orders; improvement fund orders;

teacher's warrants; shingle scrip, etc. In every case where the associated banks

of a section failed to supply the needed currency, individuals and corporations

were compelled to resort to extraordinary devices. This illegal banknote

currency was accepted by the community, the financial conditions became

normal again, and every credit instrument was made good in actual money.

Usury and Its Penalty: The laws of some of the states for collecting more than

the legal rate of interest are quite severe. National banks which collect more

than the legal rate can only be proceeded against under the U. S. Interest Penalty

Act, which provides that usury shall be punished by a forfeiture of twice the

amount of interest paid, if action is commenced within two years of the time of

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such usurious practice, and that recovery can be had for the entire amount of

interest paid at any time.

8. LEGAL ASPECTS OF CREDIT INSTRUMENTS

In commercial usage the term bill, or bill of exchange, is practically

synonymous with the draft or accepted draft. Where the words notes, drafts, and

bills of exchange are used, the term "notes" covers direct obligations between

persons of the kind already referred to. The term "drafts" usually means orders

drawn upon a bank or by one bank upon another, while the term "bills," or bills

of exchange, is used to include drafts, whether accepted or unaccepted, growing

out of transactions in goods. ‘Negotiable paper’ is the usual economic class of

credit instrument used by lawyers. Works on legal relationships and commercial

paper usually state that there are to be included under the term "negotiable

instruments," or "negotiable paper," checks, drafts, and bills. Negotiability is

defined by lawyers as the power to transfer title absolutely and without the

necessity of notice incurring liability on the part of the recipient.

9. CONCLUSION

The use of Credit Instruments as a medium or short-term investment is obvious.

If one takes the differential between the “face” price and the “present value” and

moves on a client’s funds into and out of the instruments on am active, regular

basis the effective yield is substantial. The downside from trading in these

instruments is nearly nil, if one retains protocol over the program structure and

documentation. These instruments truly embody the best risk/reward ratio in

today’s investment marketplace.

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REFERENCES

Samuelson and Nordhaus, Economics, Eighteenth Edition, Tata McGraw

Hill publishing company limited

K.K.Dewett and J.D,verma, Elementary Economics Theory, S. Chand

and Company Imited

Dr A.Mustafa, Foreign Trade Finance and Documentation, Laxmi

publications Limited