(a) What is a Capital Market? (b) State eight reasons why a bank may dishonour a cheque.

Answer Details

(a) What is a Capital Market?

A capital market is the market where long-term funds are borrowed and lent, that is, where medium and long-term securities such as shares, stocks, debentures and government bonds are bought and sold. It is made up of institutions like the stock exchange, development banks, insurance companies and issuing houses that channel long-term savings into investment.

(b) Eight reasons why a bank may dishonour a cheque

1. Insufficient funds: The drawer does not have enough money in the account to cover the cheque.
2. Post-dated cheque: The cheque bears a future date and is presented before that date.
3. Stale cheque: The cheque is presented after it has expired (usually more than six months old).
4. Words and figures differ: The amount written in words does not agree with the amount in figures.
5. Irregular or missing signature: The drawer's signature is absent or differs from the specimen held by the bank.
6. Stop payment order: The drawer has instructed the bank not to pay the cheque.
7. Death, insanity or bankruptcy of the drawer: The bank receives notice of the drawer's death, insanity or bankruptcy.
8. Alterations not countersigned: There is an unauthorised alteration on the cheque that the drawer has not countersigned.