Q.Explain the discounting of bills of exchange as a function of a commercial bank.

Discounting a bill of exchange is effectively a short-term lending function that gives a trader immediate cash against a payment due only in the future. …

A Bill of Exchange is a written order to pay a certain sum on a specified future date. A trader holding such a bill, but needing cash before that maturity date, can get it discounted by a commercial bank: the bank pays the trader the bill's face value minus a discount (which is effectively the bank's interest/charge for the remaining period until maturity), and the trader receives immediate cash rather than waiting. On the bill's maturity date, the bank itself presents the bill and collects the full face value from the party originally liable to pay. …

Describing discounting as simply 'the bank buying the bill' without explaining that the amount paid is LESS than the bill's face value, with the difference (t …