What is a negotiable instrument?

A negotiable instrument refers to a financial document that guarantees the payment of a specific amount of money either on demand or at a set time. For an instrument to be considered negotiable, it must meet certain criteria that facilitate its transferability between parties. These criteria typically include being in writing, containing an unconditional promise to pay a specified amount, being made payable either on demand or at a definite time, and being signed by the maker or drawer of the instrument.

The transferability aspect is significant because it allows the holder of the instrument to pass it to another entity, effectively making it a form of payment that can be circulated within the economy. Examples of negotiable instruments include checks, promissory notes, and bills of exchange, all of which are integral to various transactions in banking and finance.

In contrast, other options do not conform to the definition and characteristics of negotiable instruments. A type of savings account refers to a deposit account at a financial institution where money earns interest but does not meet the criteria for transferability. A written agreement to loan funds may involve terms and conditions but does not inherently provide a negotiable instrument. Finally, a long-term equity investment typically involves ownership in a company through stocks and does not relate to the definition of a