Usance

Definition of Usance

Usance is a term used primarily in international trade and finance to describe the period allowed for the payment of bills of exchange. The duration, often specific to the country or trade agreements, typically spans around 60 days but can vary based on regional financial practices and contractual stipulations.

Examples of Usance

Import/Export Trade: A U.S. exporter ships goods to a French importer under the terms that the bill of exchange must be paid within 60 days (usance period). The French importer receives the products and agrees to pay within the decided period.
Historical Context: Historically, usance also referred to the interest rate on borrowed funds, a usage that has since evolved in modern finance.

Frequently Asked Questions (FAQs)

What is the usual usance period for international trade?

The most common usance period is 60 days; however, it can vary based on the country, industry norms, and specific terms of the trade agreement.

How is usance different from credit terms?

Usance refers specifically to the duration for payment of a bill of exchange in international trade, whereas credit terms can apply to various types of transactions and usually denote the time period agreed by parties involved in a transaction for payment.

Can usance periods exceed 60 days?

Yes, usance periods can be negotiated to exceed 60 days depending on the mutual agreement between buyer and seller and the norms of international banking and finance in the respective countries.

Is usance still used to define the rate of interest on loans?

In its historical context, usance described the interest rate on loans. However, in modern finance, this usage is largely obsolete.

Bill of Exchange: A written, unconditional order directing one party to pay a certain sum of money to another party. Often used in international trade.
Sight Draft: A type of bill of exchange payable on presentation to the drawee.
Tenor: The time from the date of a bill until it is due for payment, similar in concept to usance.
Documentary Credit: A guarantee from a bank ensuring that a seller will receive payment under specified conditions, often used for international transactions.

Online References

Suggested Books for Further Study

“Guide to Business and Industrial Finance” by Ralph Estes: Offers a comprehensive understanding of various financial terms, including usance.
“The Law of International Trade Finance” by Aggarwal: Discusses the various instruments of trade finance, emphasizing the practical applications of terms like usance and bills of exchange.
“Export-Import Theory, Practices, and Procedures” by Belay Seyoum: Covers comprehensive insights into the mechanisms of international trade, explaining various financial instruments.

Accounting Basics: “Usance” Fundamentals Quiz

### What does usance primarily refer to in international trade? - [ ] The amount of goods traded. - [ ] The currency used for trade. - [x] The period allowed for payment of a bill of exchange. - [ ] The weight of the shipped goods. > **Explanation:** Usance specifically refers to the period allowed for the payment of a foreign bill of exchange in the context of international trade. ### Is usance applicable only to international transactions? - [x] Yes, mainly in international trade. - [ ] No, it is used in domestic transactions too. - [ ] It applies universally to all financial transactions. - [ ] Only specific industries use it. > **Explanation:** Usance is a term predominantly used in the context of international trade to specify payment terms for bills of exchange. ### How long is a typical usance period? - [x] 60 days - [ ] 30 days - [ ] 90 days - [ ] 120 days > **Explanation:** The common usance period is generally around 60 days, though this can vary based on agreement and regional practices. ### Can usance periods be negotiated between parties? - [x] Yes - [ ] No - [ ] Only between banks - [ ] Depends on the type of goods > **Explanation:** Usance periods can be negotiated between the buyer and seller depending on their agreements and needs. ### Historically, what else did usance refer to? - [ ] Rental agreements - [ ] Long-term loans - [x] Interest rate on loans - [ ] Shipping terms > **Explanation:** In historical contexts, usance referred to the interest rate on loans, although this usage has largely become outdated in modern finance. ### What type of business transaction is a sight draft related to? - [ ] Immediate cash transaction - [x] Deferred payment bill of exchange - [ ] Leasing agreement - [ ] Stock purchase > **Explanation:** A sight draft is a type of bill of exchange that is payable immediately upon presentation, indicating a form of immediate payment within usance terms. ### Who typically sets the usance period in a commercial agreement? - [ ] The buyer - [ ] The seller - [x] Mutually agreed by both parties - [ ] National trade authorities > **Explanation:** The usance period is typically set by mutual agreement between both the buyer and seller involved in the transaction. ### What document often outlines the usance period for an export? - [ ] Invoice - [ ] Purchase order - [x] Bill of exchange - [ ] Shipping manifest > **Explanation:** The usance period is often outlined in the bill of exchange, which is used in international trade to specify payment terms. ### In modern finance, is usance often used to indicate the rate of interest on loans? - [ ] Yes, frequently - [ ] Only outside the U.S. - [x] No, rarely used this way now - [ ] Only in historical contexts > **Explanation:** In modern finance, usance is rarely used to indicate the rate of interest on loans; it is more closely associated with the period for the payment of bills of exchange. ### What is another term closely related to the concept of usance in trade finance? - [ ] Lease term - [ ] Cash flow - [x] Tenor - [ ] Dividend > **Explanation:** Tenor is closely related to usance, as it also describes the duration or time period for financial obligations.

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