 Hello and welcome to the session, in this session we are going to discuss bankers discount and bill of exchange. Suppose a dealer X buys goods from another dealer Y. A payment is made by what is called a bill of exchange which is a document drawn up by Y. Therefore bill of exchange can be defined as a written document or undertaking by a debater to a creditor for paying a certain sum of money on a specified future date. A bill contains first drawer. Drawer is the person who writes or prepares the bill. Second we have drawy. A drawy is the person who pays the bill. Third is payee. A payee is the person whom the payment is to be made. And fourth is the holder of the bill that is the person who is in possession of the bill. So it is the legal promise on the part of drawy to pay the agreed sum at the stated date. The date on which the bill is drawn or prepared is called date of drawing and the date on which the bill is accepted that is the bill is signed and accepted by the drawy is called the date of acceptance of the bill and the date on which the bill is due is called the due date or the date of maturity. On the basis of this date there are two types of bills of exchange. One is bill of exchange after date in which the date of maturity is calculated from the date of drawing the bill. Second is bill of exchange after site in which the date of maturity is calculated from the date of accepting the bill. A bill of exchange does not mature legally till three days after the stated date and these three days are called days of grace. Let us now discuss discounting of the bill and bankers discount. Suppose that buy requires the money before the date on which it is due a bill of exchange may be encached from a bank or a broker. This encaching a bill of exchange before its due date is called the discounting of the bill. In this case the bank will not pay the holder the same amount of the bill but the debt some amount from the bill and pay the balance amount to the holder of the bill the amount deducted by the bank is called bankers discount. In after practice the bill broker calculates the simple interest on the nominal value of the bill for the time which will elapse before the payment is due and deducts this from the nominal value of the bill. He will also add three days of grace to the length of time while calculating the interest. Let us take an example find how much a bank gives of $500 drawn on 4th May for three months which he discounts on July 8th at 4% per annum. Now since three days of grace is allowed the bill matures on August 7th. It is given that it is discounted on 8th July therefore there are 30 days before the payment will be made so interest on $500 for 30 days at 4% per annum will be equal to 500 into further by 100 into 30 upon 365 30 days will be converted into years by dividing it by 365 therefore we get 120 by 73 which is equal to $1.64 therefore the bill broker gives $500 minus $1.64 which is equal to $498.36 hence the discounted value of the bill is $498.36 and the sum of $1.64 is deducted by the bill broker is called bankers discount or commercial discount and the difference between bankers discount and true discount is called bankers gain. This completes our session. Hope you enjoyed this session.