Question

Which of the following is not a letter of credit?

• A. Cheque
• B. Bank draft
• C. Overdraft
• D. Promissory note

Hint:

Letters of credit are bank guarantees for trade, while overdrafts are credit facilities.

Answer 1

The Correct Option is C

Step 1: Understanding the concept of letter of credit.
A letter of credit is a financial document issued by a bank guaranteeing payment to a seller on behalf of the buyer. Instruments like cheques, drafts, and promissory notes are negotiable instruments often associated with credit.
Step 2: Analyzing the options.
(A) Cheque: Considered a negotiable instrument.
(B) Bank draft: Issued by banks and accepted as a form of guaranteed payment.
(C) Overdraft: Correct — It is a facility allowing withdrawal of more money than deposited, not a letter of credit.
(D) Promissory note: A negotiable instrument promising to pay.
Step 3: Conclusion.
Thus, the correct answer is (C) Overdraft.