Wednesday, 15 August 2012

Write a note on credit instruments

There are numerous ways by which the credit can be extended. In some cases credit instruments are used while in certain cases the credit is extended without written contract. The main instruments are following :

1. Parole Credit :-
When the agreement to pay back the money is purely oral is called parole credit. If the borrower refuses to return the money, the lender can not prove.

2. Book Credit or Open Books Accounts :-

It is a simple and common type of credit. It is a simple type of an entry on the books of a business concern recording an obligation to make payments to the lender or a right to receive a payment from the borrower. The main advantage is that it is very simple and speedy way to carrying on business transactions.

3. Documentary Credit Instruments :-
Most of the credit in the modern business world is evidenced by the written contract. All the terms and conditions like rate of interest, amount period, etc. are written in it. They also facilitate recover and make the instruments more negotiable.


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