Negotiable Instrument

  

Categories: Stocks, Bonds

When you meet someone in an abandoned parking lot to sell a suitcase full of stolen game-used jock straps from NBA players, you are likely to demand cash. No names. No paperwork.

However, for other commerce, a negotiable instrument represents a useful alternative. If you legitimately buy your game-used jock straps from the NBA players, complete with bills of sale and all the other legal niceties, you're happy to accept other forms of payment. A personal check, for instance...that represents the most common negotiable instrument.

The term refers to any document that guarantees payment of an amount of money. It typically designates the payer and the payee, and promises to provide cash on demand. It prevents people from having to carry around large chunks of cash all the time.

It's negotiable because, if needed, it can be signed over to someone else. Or, in the case of the check, it can be deposited in the bank, or exchanged for cash (though your bank might have rules about whether it will cash a check without deducting some fee).

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