Purposes of Commercial Paper

During the early part of the Middle Ages, merchants and trades had to carry gold and silver to pay for the goods they purchased at the various international fairs. These precious metals were continually subject to loss or theft through the perils of travel.

To eliminate danger of this sort, merchants began to deposit their gold and silver with bankers. When they needed funds to pay for goods they had purchased, they “drew” on them by giving the seller a written order addressed to the bank, telling it to deliver part of the gold or silver to the seller. These orders called bills of exchange were substitutes for money. Today, checks and the drafts and the promissory notes that are payable on demand serve this same basic purpose.

The second major purpose of commercial paper is to serve as a credit device. Soon after bills of exchange became established as substitutes for money, merchants who wished to purchase goods on credit, discovered that sellers were sometimes willing to accept bills of exchange that were not payable until a stated time in the future – such as “ninety days after date”. If the seller was satisfied as to the commercial reputation of the bill’s drawer (the purchaser), he would take such an instrument (called a time bill or draft) and wait until the maturity date to collect it. In this way the seller-payee extended credit to the buyer-drawer.

Today, because of the widespread use of time notes and drafts, the credit aspect of commercial paper is as important to the business community as its “substitute for money” aspect.

Assignment

1. Suggest the Ukrainian for the following words and word combinations from the text:

commercial paper, promise, order, instrument, draft, promissory

note, check, certificate of deposit, advent “electronic banking”, automated teller machine, point-of-sale terminal, checkless, credit-oriented society, crude promissory note, bill of exchange, “fair” or “borough” courts, law merchant, negotiability, incorporate, perils of travel, substitute for money, payable on demand, credit device, time bill, maturity.

2. Find in the text English equivalents for the following words:

комерційні папери; наказ, вексель; чек; банкомат; поява; суспільство, що не користується чеками; суспільство, яке орієнтоване на користування кредитами; пункт плати за товар на місці; грубий; переводний вексель; торгівельне право; замінник грошей; платити на вимогу; одержання (грошей).

III. Answer the following questions.

1. What does the term “commercial paper” refer to?

2. What instruments does it comprise?

3. What are the most common of commercial papers?

4. What continues to be important to business person?

5. Did merchants use commercial paper in the 13^th century?

6. What is law merchant responsible for?

7. What problems did merchants have in the Middle Ages?

8. What did they do to eliminate the danger of loosing precious metals?

9. What did merchants give to the seller?

10. What is the second major purpose of commercial paper?