Chapter 34: Laws Relating to Bill Finance (JAIIB – Paper 2)
1. A Bill of Exchange drawn and payable in the same country is known as:
A. Foreign Bill
B. Usance Bill
C. Inland Bill
D. Accommodation Bill
As per Negotiable Instruments Act, a bill drawn and payable within the same country is called an Inland Bill.
2. Which Act in India primarily governs Bills of Exchange?
A. Negotiable Instruments Act, 1881
B. Indian Contract Act, 1872
C. Companies Act, 2013
D. RBI Act, 1934
Bills of Exchange in India are primarily governed by the Negotiable Instruments Act, 1881.
3. A Bill of Exchange payable at a future date is called:
A. Inland Bill
B. Demand Bill
C. Foreign Bill
D. Usance Bill
A Usance Bill is payable after a certain time period (tenor), unlike a Demand Bill which is payable on sight.
4. Which type of bill is drawn without consideration, mainly to provide financial accommodation?
A. Demand Bill
B. Accommodation Bill
C. Inland Bill
D. Trade Bill
An Accommodation Bill is drawn and accepted without any underlying trade transaction, usually to provide financial support.
5. A Trade Bill is different from an Accommodation Bill because:
A. Trade Bill has no legal enforceability
B. Accommodation Bill arises out of a genuine trade transaction
C. Trade Bill is always a Foreign Bill
D. Trade Bill arises out of a genuine trade transaction
A Trade Bill is backed by an actual trade transaction (sale of goods/services), unlike an Accommodation Bill which lacks such consideration.
6. If a Bill of Exchange is dishonoured, which section of the Negotiable Instruments Act, 1881 deals with legal consequences?
A. Section 4
B. Section 10
C. Section 138
D. Section 32
Section 138 of the Negotiable Instruments Act deals with dishonour of cheques and bills, prescribing penalties for non-payment.
7. A Foreign Bill of Exchange must be:
A. Drawn in one country and payable in another
B. Drawn and payable in the same country
C. Payable on demand only
D. Always payable in foreign currency
A Foreign Bill is defined as a bill drawn in one country and payable in another. It may or may not be in foreign currency.
8. Which of the following is an example of a Demand Bill?
A. Bill payable after 30 days
B. Bill payable after 60 days of sight
C. Bill payable immediately on presentation
D. Bill payable after 3 months
A Demand Bill (also called a Sight Bill) is payable immediately on presentation to the drawee.
9. Hundis, commonly used in India, are classified under which type of bills?
A. Foreign Bill
B. Indigenous Bill
C. Usance Bill
D. Demand Bill
Hundis are traditional Indian negotiable instruments and fall under the category of Indigenous Bills.
10. Which type of bill is drawn by a seller on the buyer for the value of goods supplied?
A. Accommodation Bill
B. Demand Bill
C. Usance Bill
D. Trade Bill
A Trade Bill is drawn to evidence a genuine trade transaction such as the supply of goods or services.
11. In case of a Documentary Bill, which documents usually accompany the bill?
A. Passport and Visa
B. Invoice, Transport documents, Insurance documents
C. Company Registration Certificate
D. KYC Documents
Documentary Bills are accompanied by shipping, invoice, and insurance documents related to the goods financed.
12. A Clean Bill differs from a Documentary Bill because it:
A. Always requires collateral
B. Is always a Demand Bill
C. Cannot be discounted by banks
D. Is not accompanied by any documents of title to goods
A Clean Bill is one which is not accompanied by any documents of title to goods, unlike a Documentary Bill.
13. In Bill Discounting, the banker provides finance to the drawer by:
A. Charging interest at the end of the tenor
B. Giving advance without deducting charges
C. Deducting discount in advance from the face value of the bill
D. Collecting the bill on maturity without lending
In bill discounting, the banker deducts interest (discount) upfront and pays the net amount to the drawer. On maturity, the banker collects the full value from the drawee.
14. Which type of bill finance involves the bank keeping the bills with itself and releasing funds against them?
A. Bill Purchase
B. Forfaiting
C. Bill Collection
D. Clean Bill Finance
In Bill Purchase, the bank provides immediate finance against demand bills (often with documents attached) and recovers payment on due date.
15. In Bill Collection, the banker acts as:
A. Lender
B. Endorser
C. Drawee
D. Agent
Under Bill Collection, the bank acts as an agent to collect the payment from the drawee on behalf of the customer. The bank does not assume credit risk.
16. Which type of bill finance is mainly used in international trade and involves selling export bills without recourse to the exporter?
A. Bill Purchase
B. Forfaiting
C. Bill Discounting
D. Bill Collection
Forfaiting is a form of export bill finance where receivables are sold to a forfaiter without recourse, transferring the risk of default.
17. Which of the following is TRUE regarding Bill Purchase vs. Bill Discounting?
A. Bill Purchase usually covers demand bills, while Bill Discounting usually covers usance bills
B. Both involve only clean bills without documents
C. Bill Discounting is used for cheques only
D. Bill Purchase has higher risk for the bank than discounting
Bill Purchase generally applies to demand bills (sight bills with documents), whereas Bill Discounting is usually for usance bills payable at a future date.
18. In case of Bill Discounting, if the bill is dishonoured on due date, who bears the liability to pay the bank?
A. Drawee only
B. Notary Public
C. Banker
D. Drawer/Endorser
If the bill is dishonoured, the banker has recourse to the drawer or endorser who discounted the bill, since the banker provided finance with recourse.
19. When a banker discounts a bill, its position is that of:
A. Agent of the customer
B. Holder for value
C. Guarantor of the drawee
D. Trustee of the drawer
When a banker discounts a bill, it gives value to the drawer and becomes a holder for value, enjoying rights of a bona fide holder.
20. If a bill purchased or discounted is dishonoured, the banker has the right of:
A. Appropriation of funds
B. Lien on securities
C. Pledge of documents
D. Recourse against the drawer or endorser
If a discounted bill is dishonoured, the banker can exercise recourse against the drawer or any endorser, as the banker gave finance with recourse.
21. If a banker acts negligently while collecting a bill and the customer suffers loss, the banker may lose protection under:
A. Section 131 of the Negotiable Instruments Act
B. Section 138 of the Negotiable Instruments Act
C. Section 45 of the RBI Act
D. Section 10 of the Contract Act
Section 131 of the Negotiable Instruments Act grants protection to collecting bankers, provided they act in good faith and without negligence.
22. Which of the following best describes the banker’s position in case of Bills for Collection?
A. Holder in due course
B. Holder for value
C. Agent of the customer
D. Trustee for RBI
In case of Bills for Collection, the banker acts purely as an agent of the customer and does not assume ownership of the bill.
23. A banker who has discounted a bill and becomes a 'Holder in Due Course' enjoys which advantage?
A. Can sue only the drawer
B. Has no legal protection
C. Cannot claim from endorsers
D. Gets better title even if the previous title is defective
A Holder in Due Course obtains the bill in good faith and for consideration, giving them a better title even if there are defects in previous endorsements.
24. Which type of lien does a banker generally exercise over bills discounted for a customer?
A. Particular lien
B. General lien
C. Equitable lien
D. Judicial lien
A banker has a general lien, which allows them to retain goods, securities, or bills of the customer for any amount due unless otherwise agreed.
