- This topic has 7 replies, 3 voices, and was last updated 6 years ago by
MikeLittle.
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bubimara
- Topics: 1
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Hi!
From the notes I understood that in international bill of exchange, the drawer is the party owing money to the payee (page 55), which in regular buy-sell business should be the buyer.
I found this exam practice question:
A is selling goods to B, with the transaction financed by an international bill of exchange. AA Bank is acting for A and BB bank is B’s bank. Which party is the drawer of the bill of exchange? 1) A; 2) B; C)BB; D)AA.
A is given as the correct answer, with the explanation that it is the seller (A) who instigates the process of payment to be made in the international bill of exchange.Kindly, also on many different sources on the web on the topic seller is always mentioned as the regular drawer.
Can you please help me trying to understand this one?
Thanks.
MikeLittle
- Topics: 26
- Replies: 22604
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Yes – this is naughty!
Technically the person that owes the money (so, the buyer) is the drawer.
However, in a commercial situation such as the one you outline, it is the seller that will say to the buyer “I want payment by bill of exchange” so the buyer will agree to that
Then the seller will actually PREPARE the bill of exchange and send it to the drawer for approval and signature. The drawer (the buyer) will send it to his bank for acceptance and then the bill will be returned to the seller.
So, the person that actually PREPARES the bill is probably the seller but the person that owes the money on the bill is the buyer – the drawer
hemraj123
- Topics: 110
- Replies: 189
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Sir, I have 2 questions.
Firstly, how are we suppose to know if the seller was the one to request for a bill in a question?
and secondly, won’t that still make the buyer the drawer?
MikeLittle
- Topics: 26
- Replies: 22604
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What did my first line say in my previous post?
It’s very tricky and you’re just going to have to believe me – the buyer, the one ordering the payment to be made, is the drawer. Full stop
hemraj123
- Topics: 110
- Replies: 189
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I am sorry if I cant understand this, but in the above question, A is the seller and B is the buyer. So it would make buyer the drawer (B) and seller the payee (A).
From the above post as I understood that the seller would instigate the process and would thus the seller would draw the bill and send it to the buyer for approval.
The only thing I can’t understand is that why is the answer for the above question is A who is the seller and not B, since B is the drawer?
MikeLittle
- Topics: 26
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I can’t understand that either! In my first response, I clearly indicated that, although it could well be the seller that PREPARES the bill, it is the buyer that instructs the buyer’s bank to make the payment so it’s the BUYER that is the drawer
If you owed me money and I said to you “I want paying by bill of exchange” you would likely say “How do I do that?”
My response would be “Leave it to me. I’ll do all the paperwork and send it to you. All you need to do is sign it and send it to your bank. The bank will sign it and return it to you. You then need to send it on to me”
Even though I actually prepared the paperwork, I’m not the drawer. You are the drawer, your bank is the drawee and I am the payee
Role play this with a couple of friends – it may help you to see it more clearly
hemraj123
- Topics: 110
- Replies: 189
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Thank you sir for explaining this properly. I just got confused by the the question above for which answer mentioned that the seller was the drawer.
MikeLittle
- Topics: 26
- Replies: 22604
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I can understand your confusion!
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