Question

What does a bank do when discounting a bill of exchange?

Options

• Lends full amount at once

• Buys the bill at a discount for quick cash to creditor

• Holds it till maturity without fee

• Rejects it if overdue

Answer 1

Buys the bill at a discount for quick cash to creditor

Explanation: 

The bank deducts the commission, pays the seller early, and collects the full amount from the buyer later.