1) Define cheque and explain
types of cheques.
A cheque (or check) is a written, dated, and
signed instrument that directs a bank to pay a specific sum of money to the
bearer or to the order of a person or entity named in the document. The person
writing the cheque, known as the drawer, has a transactional account (often a
checking account) with a bank from which the money will be drawn.
Types of Cheques
1. Bearer Cheque:
- This cheque is payable to the person
holding or bearing the cheque. The bearer can collect the payment over the
counter at the bank.
- There is no need for any identification
for the bearer to encash this cheque.
2. Order Cheque:
- This cheque is payable to a particular
person or his order. The payee can transfer an order cheque to someone else by
endorsing it.
- The bank requires identification of the
person presenting the cheque before making the payment.
3. Crossed Cheque:
- This cheque has two parallel transverse
lines on the top left corner or across the face of the cheque. It cannot be
encashed directly at the bank counter. It can only be credited to the payee's
account.
- It provides an additional level of
security and prevents the misuse of the cheque.
4. Account Payee
Cheque:
- This cheque is a type of crossed cheque,
but it is crossed with the words "Account Payee" between the lines.
It can only be deposited into the account of the payee mentioned on the cheque.
- This type ensures that the cheque amount
is credited only to the account of the payee and not to any other person.
5. Post-Dated
Cheque:
- A post-dated cheque is dated for a future
date. The bank will not process the cheque until the date specified.
- This type is often used for future
payments.
6. Stale Cheque:
- A stale cheque is a cheque that has not
been presented for payment within a stipulated period (usually six months from
the date of issue). After this period, the cheque becomes invalid.
7. Open Cheque:
- This cheque is uncrossed and can be
encashed at any branch of the issuing bank. The payment is made over the
counter to the person presenting it.
8. Travelers
Cheque:
- These are pre-printed, fixed-amount
cheques designed for travelers. They can be used to exchange for local currency
or to make payments.
- They require the holder's signature upon
issuance and again at the time of encashment.
9. Blank Cheque:
- A blank cheque is one in which the drawer
signs but leaves other details (such as amount and payee) empty.
- It can be risky if it falls into the wrong
hands as the bearer can fill in any amount and cash it.
10. Certified
Cheque:
- A certified cheque is a cheque for which
the issuing bank guarantees that the drawer has sufficient funds to honor it.
- The bank verifies the availability of
funds and sets aside the amount from the drawer’s account for the payment of
the cheque.
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