Bank Discount
Bill of Exchange
Bill of Exchange: A written order to pay a sum of money to a person or entity at a certain date (maturity date)
Bank Discounting
Bank Discounting: The process of a bank buying a bill of exchange from a person or entity before the maturity date and retains a certain amount of money as interest (services)
Discount Amount
- Capital (
C
or Nominal Value): The amount of money the bill of exchange is worth - Discount rate (
t
): The percentage of the capital the bank retains as interest - Duration (
n
): Number of days until the maturity date
Discount Net Value
Example
Date of BoE: 5 September
Capital: 24,000$
Discount rate: 7%
Maturity Date: 14 October
Working days: 4 days
Bank Fees: 3% of nominal value
VAT: 10%
Step 1: Calculate the duration
Start date: 5 September
End date: 14 October
From 5 September to 30 September: 25 days
From 1 October to 14 October: 14 days
Total duration: 39 days
Working days: 4 days
Duration: 39 + 4 = 43 days
Step 2: Calculate the discount amount
Step 3: Calculate the discount + banking fees
Step 4: Add the VAT
Value of Bill Exchange
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