Form 18. A Bank Draft
Before sending this draft to Field & Co., Roberts indorses it in favor of Field & Co., who upon its receipt deposit it with their own bank and through it secure its collection from the Second National Bank. Roberts pays his bank for the draft $210 plus exchange.
Drafts may be foreign or domestic. They are domestic when they are drawn and payable within the same state or country; otherwise they are foreign. According to the present usage, the term “draft” is used whenever the parties concerned live within the United States, although they may reside in different states, and the term “bill of exchange” is applied to all such instruments where some of the parties live abroad.
The Trade Acceptance.—The Federal Reserve Board defines a trade acceptance as “a bill of exchange drawn by the seller on the purchaser of goods sold and accepted by such purchaser.” The chief characteristic of this document as contrasted with the ordinary draft is the showing on its face of the origin of the transaction giving rise to the draft, usually by means of the following statement: “The obligation of the acceptor hereof arises out of the purchase of goods from the drawer.” The following requirements to make a trade acceptance eligible for rediscount by the federal reserve banks have been laid down by the Federal Reserve Board:
1. It must have arisen out of an actual commercial transaction, usually the purchase and sale of commodities.
2. It must have been drawn under a credit opened for the purpose of conducting or settling accounts resulting from business transactions involving the shipment or storage of goods.
3. At the time of presentation to a federal reserve bank for discount or as collateral for the loan of money, it must have a maturity of not more than three months exclusive of days of grace.
Trade acceptances are promissory notes just as are any other accepted drafts. Because they comprise a very liquid asset, it is not unusual to record them in an account, Trade Acceptances, and so distinguish them from other notes and drafts. If they are few in number, they are more usually recorded as Notes Receivable.
Checks.—A check is a draft on a depositary bank. It is an individual’s order to his bank of deposit to pay a named or designated payee a certain sum of money. Two illustrations are given below, somewhat different in form but identical in nature. In the first, likeness of the check to a draft is very evident.
