Which statement describes a bill of exchange?

• A. It is a credit instrument used for domestic payroll
• B. It is a negotiable instrument similar to a promissory note
• C. It is a written order directing payment of a fixed sum on a future date
• D. It is a government bond

Answer: (C)

A bill of exchange is an instruction in writing from one party to another to pay a specified amount. The essential feature is an order to pay, not a promise to pay, and it is payable at a future date (or on demand, if stated that way). This is why describing it as a written order directing payment of a fixed sum on a future date best fits the concept. It’s different from a promissory note, which is a debtor’s promise to pay the creditor, and it’s not a government bond, which is a security issued by the government.