Instruments of Payement

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CONTENTS

1. THE PAYMENT SYSTEM 2

1.1. TYPE OF RISKS IN PAYMENT SYSTEM 2

2.1. TYPES OF PAYMENT SYSTEM 3

3.1. RTGS (Real Time Gross Settlement) 4

3.1.1. Goals of RTGS 4

2. INSTRUMENTS OF PAYMENT 6

2.1. TYPES OF PAYMENT INSTRUMENTS 6

3. PAYING INSTRUMENTS 9

3.1. CHEQUE 9

3.1.1 TYPES OF CHEQUE 9

3.1.2. ELEMENTS OF CHEQUE 9

4.1. PAYMENTS CARD 10

5.1. LETTER OF CREDIT 12

5.1.1 ELEMENTS OF A LETTER OF CREDIT 12

6.1.1. TYPES OF LETTER OF CREDIT 12

Example: 13

4. REFERENCES 15

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THE PAYMENT SYSTEM

In every economy, a large number of transactions take place each day on the initiative of a wide range of economic actors. So, almost all of these transactions involve transfer of money.

A payment system is a system used for transferring money between physical and legal persons done for paying some obligation.

The term “payment system” refers to the complete set of instruments, intermediaries, rules, procedures, processes and interbank funds transfer systems which facilitate the circulation of money in a country or currency area.

Well-designed payment infrastructure contributes to the proper functioning of markets and helps to eliminate frictions in trade.

In payment system transfer of money can be done like a cash or non-cash payments.

Also, with the advent of computers and electronic communications a large number of alternative electronic payment systems have emerged. These include debit cards, credit cards, electronic funds transfers, direct credits, direct debits, internet banking and e-commerce payment systems.

Payments can be:

1. Domestic payment and

2. International payment.

Domestic payments can be used to make transfers between physical and legal persons from the same country.

International payment are those which are used to make transfers between resident of different countries.

TYPE OF RISKS IN PAYMENT SYSTEM

In payment system, participants face the risks that could be...