Bank Bills (1 Viewer)

[seremify007]

Can anyone please explain bank bills to me? I've been thinking really hard about it and I am pretty sure I understand the concept of trading credit rating with the bank, but I don't really get how they work... I've asked my rents who are investors but they gave me the 'investor side' of things without really explaining much to me I don't think.

If it helps, please use names;

James = guy who runs business
Andrew = guy who owes money to james
Bank (self explanatory)
Will = guy who is an investor

Thanks >< I am startin to get really confused over it ><

 

[Jexi]

haha I'll try not to confuse you.

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James and Andrew are in trade.

Andrew owes $50 to James.

Andrew goes to the bank to ask for a bank bill.

Bank looks at Andrew's financial position. And say the bank is convinced that Andrew can pay back the $50 in 90 days (usually the time period for a bank bill)

Then the bank sells the Bill to Will. Will wants to buy it at a discount price (perhaps $40)because there is an interest on it and he wants more money.

Say 30 days comes along, Will decides to sell it to someone else on the ASX-- we can call this person Mark.

Now Mark is free to sell the bill and so forth but for the sake of this example, he's not going to.

Anyways, when the bank sells the bill to Will for $50, the bank will lend that money to Andrew (who will evetually pay James).

In 90 days time, Mark (who has still go the bill) will present the bill to the bank worth $60 (extra 10 for the interest) and the bank will charge it on Andrew's account.


__________

I hope that makes sense.

 

[chinkyeye]

wtf... u guys are hopeles... jsut kneo defintion... bank bills are orders of money to b paid back at a specific date in the future..... none of this in-depth nerd expalnation shit, simplest is bestest!

 

[hYperTrOphY]

From my notes:

Banks bills, commercial bills and promissory notes are short-term financial instruments which provide an alternative to overdraft finance. They are written orders guarenteed by a bank to pay a particular person or business on a certain date in the future. The bank does not provide funds but substitutes its credit rating for the businesses credit rating. They usually last 90-180 days and are often for amounts of over $50,000 and during this time money is often collected by the business from customers to pay the amount owed. Bank bills can be re-borrowed, extending the period of short-term borrowing.

Understanding the different financial instruments is the hardest part of the whole course for me.

 

[seremify007]

Thanks jexi- your explanation cleared it up alot (I think)^^ it's pretty much what my Dad said but in.. easier to understand words.

I know they won't ask us a fully in-depth Q on it, but it's more of a... I'm yet to find any book which really gives a good explanation. I understand things like overdraft and factoring, but the bank bills thing really confused me as different teachers tried hard to explain & ended up giving up. Thanks to the others who contributed, but I just really wanted to know how things work... I'm that kind of person.