" Public deposits, trade credit and bills discounting are sources of short term finance ". Explain.
Answers
Explanation:
1. ᴛʀᴀᴅᴇ ᴄʀᴇᴅɪᴛ : ᴛʀᴀᴅᴇ ᴄʀᴇᴅɪᴛ ɪs ᴛʜᴇ ᴄʀᴇᴅɪᴛ ᴇxᴛᴇɴᴅᴇᴅ ʙʏ ᴏɴᴇ ʙᴜsɪɴᴇss ғɪʀᴍ ᴛᴏ ᴀɴᴏᴛʜᴇʀ ᴀs ɪɴᴄɪᴅᴇɴᴛᴀʟ ᴛᴏ sᴀʟᴇ ᴏʀ ᴘᴜʀᴄʜᴀsᴇ ɢᴏᴏᴅs ᴀɴᴅ sᴇʀᴠɪᴄᴇs. ᴛʀᴀᴅᴇ ᴄʀᴇᴅɪᴛ ᴍᴀʏ ʙᴇ ᴅᴇғɪɴᴇᴅ ᴀs ᴄʀᴇᴅɪᴛ ᴇxᴛᴇɴᴅᴇᴅ ʙʏ sᴇʟʟᴇʀs ᴛᴏ ʙᴜʏᴇʀs ᴀᴛ ᴀʟʟ ʟᴇᴠᴇʟs ᴏғ ᴛʜᴇ ᴘʀᴏᴅᴜᴄɪᴛᴏɴ ᴀɴᴅ ᴅɪsᴛʀɪʙᴜᴛɪᴏɴ ᴘʀᴏᴄᴇss ᴅᴏᴡɴ ᴛᴏ ᴛʜᴇ ʀᴇᴛᴀɪʟᴇʀ. ɪᴛ ᴀʀɪsᴇs ᴏᴜᴛ ᴏғ ᴛʀᴀɴsғᴇʀ ᴏғ ɢᴏᴏᴅs ᴀɴᴅ ɪɴ ᴜɴsᴇᴄᴜʀᴇᴅ. ᴛʀᴀᴅᴇ ᴄʀᴇᴅɪᴛ ɪs ᴜsᴜᴀʟʟʏ ɢʀᴀɴᴛᴇᴅ ғᴏʀ ᴘᴇʀɪᴏᴅs ʀᴀɴɢɪɴɢ ғʀᴏᴍ 15 ᴅᴀʏs ᴛᴏ ᴛʜʀᴇᴇ ᴍᴏɴᴛʜs. ᴛʜᴇ ʙᴜʏɪɴɢ ғɪʀᴍ ʀᴇᴄᴇɪᴠᴇs sᴜᴘᴘʟɪᴇs ᴡɪᴛʜᴏᴜᴛ ᴘᴀʏɪɴɢ ɪᴍᴍᴇᴅɪᴀᴛᴇʟʏ. ᴛʀᴀᴅᴇ ᴄʀᴇᴅɪᴛ ʀᴇғʟᴇᴄᴛs ᴛʜᴇ ʙᴜʏᴇʀ’s ᴘᴏᴡᴇʀ ᴛᴏ ᴘᴜʀᴄʜᴀsᴇ ɴᴏᴡ ᴀɴᴅ ᴘᴀʏ ʟᴀᴛᴇʀ. ɪᴛ ᴀʟsᴏ ɪɴᴅɪᴄᴀᴛᴇs ᴛʜᴇ sᴇʟʟᴇʀ’s ғᴀɪᴛʜ ɪɴ ᴛʜᴇ ʙᴜʏᴇʀ’s.
ᴛʀᴀᴅᴇ ᴄʀᴇᴅɪᴛ ɪs ᴀ ᴠᴇʀʏ sɪᴍᴘʟʏ ᴀɴᴅ ᴄᴏɴᴠᴇɴɪᴇɴᴛ ᴍᴇᴛʜᴏᴅ ᴏғ ʀᴀɪsɪɴɢ sʜᴏʀᴛ ᴛᴇʀᴍ ғɪɴᴀɴᴄᴇ. ɴᴏ ғᴏʀᴍᴀʟɪᴛɪᴇs ᴀʀᴇ ɪɴᴠᴏʟᴠᴇᴅ ᴀɴᴅ ᴛʜᴇ ᴄʀᴇᴅɪᴛ ɪs ʀᴇᴀʟɪᴛʏ ᴀᴠᴀɪʟᴀʙʟᴇ ᴛᴏ ʀᴇᴘᴜᴛᴇᴅ ʙᴜsɪɴᴇss ғɪʀᴍs. ɴᴏ ɪɴᴛᴇʀᴇsᴛ ɪs ᴘᴀʏʙʟᴇ ᴀɴᴅ ɴᴏ sᴇᴄᴜʀɪᴛʏ ɪs ᴛᴏ ʙᴇ ᴘᴀɪᴅ. ɪᴛ ɪs ᴀ ғʟᴇxɪʙʟᴇ sᴏᴜʀᴄᴇ ᴏғ ғɪɴᴀɴᴄᴇ ᴀs ɴᴏ ᴄʜᴀʀɢᴇ ɪs ᴄʀᴇᴀᴛᴇᴅ ᴀɢᴀɪɴsᴛ ᴛʜᴇ ᴀssᴇᴛ ᴏғ ᴛʜᴇ ᴄᴏᴍᴘᴀɴʏ. ᴛʀᴀᴅᴇ ᴄʀᴇᴅɪᴛ ɪs ᴍᴏʀᴇ ᴇᴄᴏɴᴏᴍɪᴄᴀʟ ᴛʜᴀɴ ʙᴀɴᴋ ʟᴏᴀɴs. ᴛʜᴇ sᴜᴘᴘʟɪᴇʀs ʜᴀs ᴛᴏ ʙᴇᴀʀ ʟᴏssᴏғ ʙᴀᴅ ᴅᴇʙᴛ ɪɴ ᴀᴅᴅɪᴛɪᴏɴ ᴛᴏ ᴛʜᴇ ᴄᴏsᴛs ᴏғ ᴀᴅᴍɪɴɪs ᴛᴇʀɪɴɢ ᴄʀᴇᴅɪᴛ ᴀᴄᴄᴏᴜɴᴛs. ʜᴇ ʀᴇǫᴜɪʀᴇs ᴀ ʟᴀʀɢᴇʀ ᴡᴏʀᴋɪɴɢ ᴄᴀᴘɪᴛᴀʟ ᴛᴏ sᴜᴘᴘʟʏ ɢᴏᴏᴅs ᴏɴ ᴄʀᴇᴅɪᴛ. ᴛʜᴇ ʙᴜʏᴇʀ ʟᴏssᴇs ᴄᴀsʜ ᴅɪsᴄᴏᴜɴᴛs.
2. ʙᴀɴᴋ ᴄʀᴇᴅɪᴛ : ᴄᴏᴍᴍᴇʀᴄɪᴀʟ ʙᴀɴᴋs sᴇʀᴠᴇ ᴀs ᴛʜᴇ sɪɴɢʟᴇ ʟᴀʀɢᴇsᴛ sᴏᴜʀᴄᴇ ᴏғ sʜᴏʀᴛ-ᴛᴇʀᴍ ғɪɴᴀɴᴄᴇ ᴛᴏ ʙᴜsɪɴᴇss ғɪʀᴍs. ᴛʜᴇʏ ᴘʀᴏᴠɪᴅᴇ ғᴏʟʟᴏᴡɪɴɢ ᴛʏᴘᴇs ᴏғ sʜᴏʀᴛ-ᴛᴇʀᴍ ғɪɴᴀɴᴄᴇ :
(ᴀ) ᴏᴜᴛʀɪɢʜᴛ ʟᴏᴀɴs : ᴀ ʟᴏᴀɴs ɪs ᴅɪʀᴇᴄᴛ ᴀᴅᴠᴀɴᴄᴇ ᴍᴀᴅᴇ ɪɴ ʟᴜᴍᴘsᴜᴍ ᴡʜɪᴄʜ ɪs ᴄʀᴇᴅɪᴛᴇᴅ ᴛᴏ ᴀ sᴇᴘᴀʀᴀᴛᴇ ʟᴏᴀɴ ᴀ/ᴄ ɪɴ ᴛʜᴇ ʙᴏʀʀᴏᴡᴇʀ. ᴛʜᴇ ʙᴏʀʀᴏᴡᴇʀ ᴡɪᴛʜᴅʀᴀᴡs ᴛʜᴇ ғᴜʟʟ ᴀᴍᴏᴜɴᴛ ɪɴ ᴄᴀsʜ ɪᴍᴍᴇᴅɪᴀᴛᴇʟʏ ᴀɴᴅ ᴜɴᴅᴇʀᴛᴀᴋᴇs ᴛᴏ ʀᴇᴘᴀʏ ɪᴛ ɪɴ ᴏɴᴇ sɪɴɢʟᴇ ɪɴsᴛᴀʟᴍᴇɴᴛ. ᴛʜᴇ ʙᴏʀʀᴏᴡᴇʀ ɪs ʀᴇǫᴜɪʀᴇᴅ ᴛᴏ ᴘᴀʏ ᴛʜᴇ ɪɴᴛᴇʀᴇsᴛ ᴏɴ ᴛʜᴇ ᴡʜᴏʟᴇ ᴀᴍᴏᴜɴᴛ ғʀᴏᴍ ᴛʜᴇ ᴅᴀᴛᴇ ᴏғ sᴀɴᴄᴛɪᴏɴ.
(ʙ) ᴄᴀsʜ ᴄʀᴇᴅɪᴛ : ɪᴛ ɪs ᴀ ғᴏʀᴍᴀʟ ᴀɴᴅ ʀᴇᴠᴏʟᴠɪɴɢ ᴄʀᴇᴅɪᴛ ᴀɢʀᴇᴇᴍᴇɴᴛ ᴜɴᴅᴇʀ ᴡʜɪᴄʜ ᴀ ʙᴏʀʀᴏᴡᴇʀ ɪs ᴀʟʟᴏᴡᴇᴅ ᴛᴏ ʙᴏʀʀᴏᴡ ᴜᴘ ᴛᴏ ᴄᴇʀᴛᴀɪɴ ʟɪᴍɪᴛ. ᴜɴʟɪᴋᴇ, ᴀ ʟᴏᴀɴ, ɪᴛ ɪs ᴀ ʀᴜɴɴɪɴɢ ᴀᴄᴄᴏᴜɴᴛ ғʀᴏᴍ ᴡʜɪᴄʜ ᴛʜᴇ ᴀᴍᴏᴜɴᴛs ᴄᴀɴʙᴇ ᴡɪᴛʜᴅʀᴀᴡɴ ғʀᴏᴍ ᴛɪᴍᴇ ᴛᴏ ᴛɪᴍᴇ, sᴜʙᴊᴇᴄᴛ ᴛᴏ ᴛʜᴇ sᴛɪᴘᴜʟᴀᴛᴇᴅ ᴀᴍᴏᴜɴᴛ. ᴄᴀsʜ ᴄʀᴇᴅɪᴛ ɪs ᴏғ ᴛᴡᴏ ᴛʏᴘᴇs. ᴡʜᴇɴ ᴛʜᴇ ᴄᴀsʜ ᴄʀᴇᴅɪᴛ ɪs ɴᴏᴛ ʙᴀᴄᴋᴇᴅ ʙʏ ᴀɴʏ sᴇᴄᴜʀɪᴛʏ, ɪᴛ ɪs ᴋɴᴏᴡɴ ᴀs ᴄʟᴇᴀʀ ᴄᴀsʜ ᴄʀᴇᴅɪᴛ.
(ᴄ) ʟɪɴᴇ ᴏғ ᴄʀᴇᴅɪᴛ : ɪᴛ ɪs ᴀɴ ɪɴғᴏʀᴍᴀʟ ᴀʀʀᴀɴɢᴇᴍᴇɴᴛ ᴜɴᴅᴇʀ ᴡʜɪᴄʜ ᴀ ᴄᴜsᴛᴏᴍᴇʀ ᴄᴀɴ ʙᴏʀʀᴏᴡ ᴜᴘ ᴛᴏ ᴀ sᴘᴇᴄɪғɪᴇᴅ ʟɪᴍɪᴛ. ᴛʜᴇ ᴍᴀxɪᴍᴜᴍ ᴀᴍᴏᴜɴᴛ ᴋɴᴏᴡɴ ᴀs ᴛʜᴇ ‘ʟɪᴍɪᴛ’ ɪs ᴅᴇᴛᴇʀᴍɪɴᴇᴅ ᴀᴄᴄᴏʀᴅɪɴɢ ᴛᴏ ᴛʜᴇ ғɪɴᴀɴᴄɪᴀʟ ᴘᴏsɪᴛɪᴏɴ ᴏғ ᴛʜᴇ ʙᴏʀʀᴏᴡᴇʀ.
(ᴅ) ᴏᴠᴇʀᴅʀᴀғᴛ : ɪᴛ ɪs ᴋɪɴᴅ ᴏғ ᴛᴇᴍᴘᴏʀᴀʀʏ ғɪɴᴀɴᴄɪᴀʟ ᴀᴄᴄᴏᴍᴍᴏᴅᴀᴛɪᴏɴ ᴇxᴛᴇɴᴅᴇᴅ ʙʏ ᴀ ʙᴀɴᴋ ᴛᴏ ɪᴛs ʀᴇɢᴜʟᴀʀ ᴄᴜsᴛᴏᴍᴇʀ. ᴜɴᴅᴇʀ ᴛʜɪs ᴀʀʀᴀɴɢᴇᴍᴇɴᴛ, ᴀ ᴄᴜsᴛᴏᴍᴇʀ ʜᴀᴠɪɴɢ ᴀ ᴄᴜʀʀᴇɴᴛ ᴀ/ᴄ. ᴡɪᴛʜ ᴛʜᴇ ʙᴀɴᴋ ɪs ᴀʟʟᴏᴡᴇᴅ ᴛᴏ ᴏᴠᴇʀᴅʀᴀᴡ ʜɪs ᴀᴄᴄᴏᴜɴᴛ.
(ᴇ) ᴅɪsᴄᴏᴜɴᴛɪɴɢ ᴏғ ʙɪʟʟs : ᴛʜɪs ɪᴍᴘʟɪᴇs ᴘʀᴏᴄᴜʀɪɴɢ ᴄᴀsʜ ғʀᴏᴍ ᴀ ʙᴀɴᴋ ɪɴ ᴇxᴄʜᴀɴɢᴇ ғʀᴏᴍ ᴄʀᴇᴅɪᴛ ɪɴsᴛʀᴜᴍᴇɴᴛs ʟɪᴋᴇ ʙɪʟʟs ᴏғ ᴇxᴄʜᴀɴɢᴇ, ᴘʀᴏᴍɪssᴏʀʏ ɴᴏᴛᴇs ᴀɴᴅ ʜᴜɴᴅɪᴇs. ʙᴀɴᴋs ʙᴜʏ ᴛʜᴇsᴇ ɪɴsᴛʀᴜᴍᴇɴᴛs ᴀᴛ ᴘʀɪᴄᴇs ʟᴏᴡᴇʀ ᴛʜᴀɴ ᴛʜᴇɪʀ ғᴀᴄᴇ ᴠᴀʟᴜᴇ ᴛʜᴇ ᴅɪғғᴇʀᴇɴᴄᴇ ʙᴇɪɴɢ ᴛʜᴇ ᴀᴄᴄᴏᴜɴᴛ.