Discuss the advantages and disadvantages of using a negotiable instrument instead of money.

Discuss the advantages and disadvantages of using a negotiable instrument instead of money.

 

 

Answer:

Advantages

  • Title holder can see his name on the instrument. If lost, finder cannot use it like money
  • It can be transferred to third party for money or any other promise
  • It pulls out the money from the market and stabilize inflation or stock market
  • Actual transfer of underlying asset happens at due date thus reducing change of hands of asset and preserves the quality of asset

Disadvantages

  • It is not liquid like money or credit services. You cannot buy anything in urgency as the transfer of instrument may follow few regulations
  • The value of instrument changes unlike money where it is constant. The more away you are away from due date, instrument value will be at discount as the buy expects some profit for buying this instrument in return of cash which has fixed value (Cash with fixed value is alway king)
  • There are high chances of fraud in this instruments compared to money. Money is minted by government and banks. Instruments can be written by anybody if it follows statute or government regulations.
Asked on February 14, 2018 in economics.
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