BANK DISCOUNT Meaning and
Definition
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Bank discount refers to an amount deducted from the face value of a negotiable instrument, such as a promissory note or a bill of exchange, when it is sold or discounted by a bank or financial institution. The discount represents the interest that the holder of the instrument would receive if it were held until maturity.
In essence, bank discount is the fee charged by the bank to provide upfront cash to the holder of the instrument, who would otherwise need to wait until the maturity date to receive the full payment. The bank calculates this discount by deducting the interest from the total amount of the instrument, typically using a standardized formula.
The bank discount is usually expressed as a percentage of the face value of the instrument and is subtracted from the face value to determine the discounted value. The discounted value is the amount actually received by the holder at the time of discounting.
Bank discount is commonly used in financial transactions where immediate funds are needed, such as in small business financing or in international trade. The rate of bank discount varies depending on factors such as the creditworthiness of the holder, the type of instrument, and prevailing market conditions.
It is important to note that bank discount should not be confused with interest rates, as it represents the discounting fee charged by the bank to provide immediate cash, rather than the interest charged on borrowed money.
Common Misspellings for BANK DISCOUNT
- vank discount
- nank discount
- hank discount
- gank discount
- bznk discount
- bsnk discount
- bwnk discount
- bqnk discount
- babk discount
- bamk discount
- bajk discount
- bahk discount
- banj discount
- banm discount
- banl discount
- bano discount
- bani discount
- bank siscount
- bank xiscount
Etymology of BANK DISCOUNT
The term "bank discount" has a straightforward etymology. The word "bank" originated from the Italian word "banca" or "banco", which referred to a bench or money-changing table used by medieval Italian moneylenders. Over time, the term "bank" evolved to represent financial institutions.
Meanwhile, the term "discount" comes from the Latin word "discounto", which means "to deduct" or "to subtract". It implies a reduction or deduction in price. In the context of banking, a "bank discount" refers to the deduction or reduction of the face value of a promissory note or bill of exchange when it is purchased or discounted by a bank before its maturity date.
Similar spelling word for BANK DISCOUNT
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