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What is a bill of exchange?

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A bill of exchange is a binding agreement by one party to pay a fixed amount of cash to another party as of a predetermined date or on demand. Bills of exchange are primarily used in international trade. Their use has declined as other forms of payment have become more popular. 

There are three entities that may be involved with a bill of exchange transaction. They are: 

(i) Drawee: This party pays the amount stated on the bill of exchange to the payee. 

(ii) Drawer: This party requires the drawee to pay a third party (or the drawer can be paid by the drawee). 

(iii) Payee: This party is paid the amount specified on the bill of exchange by the drawee.

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