Negotiable Instruments • Banking Exams

Foreign Instruments: Definition, Features, Differences & Examples

A foreign instrument is a negotiable instrument (cheque, bill of exchange, or promissory note) that introduces a foreign element—e.g., drawn or made outside Bangladesh, or made in Bangladesh but payable outside Bangladesh, or drawn upon a person not resident in Bangladesh. In short: if either drawing/place of payment or drawee’s residence is foreign, it is a foreign instrument. Table of Contents

1. Meaning
2. Key Features
3. Foreign vs Inland
4. Practical Examples
5. Banker Considerations (Risk & Compliance)
6. Exam Pointers
7. FAQs
8. Quick MCQ Practice
9. বাংলা নোট

1) Meaning

An instrument becomes foreign when at least one of these applies:

• Place of drawing/making: Outside Bangladesh.
• Place of payment: Outside Bangladesh.
• Drawee/resident: Drawn upon a person not resident in Bangladesh.

Memory hook: Any foreign link in draw / pay / party ⇒ foreign instrument.

2) Key Features

Cross-border element: Currency, place, or party is foreign.

Conflict of laws: May involve different legal systems.

Presentation & protest: Foreign bills may require protest as per foreign law/practice.

Exchange risk: Settlement may involve FX conversion & charges.

Banking channels: Collection through correspondent banks.

Time frames: Clearing/realisation generally longer than inland items.

3) Foreign vs Inland Instruments

AspectForeign InstrumentInland Instrument Place of DrawingOutside Bangladesh (or by non-resident)Within Bangladesh Place of PaymentOutside BangladeshWithin Bangladesh / to a resident PartiesMay involve non-resident partiesGenerally resident parties Governing LawForeign law may apply wholly/partlyBangladesh NI Act applies Bank ProcessingThrough international/foreign correspondentsDomestic clearing RisksFX, time lag, legal enforcement abroadLower cross-border risk

4) Practical Examples

1. A cheque drawn in Kolkata, payable at Mumbai (foreign for Bangladesh context).
2. A bill drawn in Dhaka but payable in London.
3. A promissory note drawn in Chittagong on a non-resident drawee in Singapore.

Tip: “Drawn here, paid abroad” or “drawn abroad, paid here”—both are foreign.

5) Banker Considerations (Risk & Compliance)

• Endorsement & documentary checks: Ensure continuous endorsements and documentary compliance as per collecting/paying country rules.
• Protest/Noting: Some foreign bills require protest for dishonour—check correspondent instructions.
• FX conversion: Apply correct exchange rate, fees, and regulatory reporting (e.g., central bank guidelines).
• Sanctions & AML/CFT: Screen parties/countries; obtain purpose of remittance where applicable.
• Time & recourse: Manage customer expectations for longer realisation periods and limited recourse.

6) Exam Pointers

• Keyword trio: foreign draw • foreign pay • foreign party.
• Opposite term: Inland Instrument (drawn/payable within Bangladesh or to resident).
• Practice: Foreign bills may need protest for dishonour depending on local law.

7) FAQs

Is a cheque drawn in Dhaka but payable in Kuala Lumpur foreign?

Yes. Since payment is outside Bangladesh, it is a foreign instrument. Do foreign instruments always involve foreign currency?

No. The currency may be BDT or foreign; the foreign element can be place or parties. Who bears exchange risk?

Usually the presenter/beneficiary unless the contract states otherwise. Banks disclose applicable rates and fees.

8) Quick MCQ Practice

1. An instrument is foreign if:
   (a) Drawn in Bangladesh and payable in Bangladesh only   (b) Drawn abroad or payable abroad or on a non-resident   (c) Signed by two parties   (d) None
   Answer: (b)
2. Which is not a typical feature of foreign instruments?
   (a) FX exposure   (b) Longer collection time   (c) Purely domestic jurisdiction   (d) Need for correspondent banking
   Answer: (c)
3. A bill drawn in Chittagong on a resident in Bangkok is:
   (a) Inland   (b) Foreign
   Answer: (b)

9) বাংলা নোট (Bangladesh Context)

Foreign instrument বলতে বোঝায়—যে ইন্সট্রুমেন্টে বিদেশি উপাদান আছে; যেমন বিদেশে তৈরি/ড্র করা, বিদেশে পরিশোধযোগ্য, অথবা নন-রেসিডেন্ট ব্যক্তির উপর ড্র করা। অর্থাৎ draw, pay বা party—এই তিনটির যেকোনো একটিতে বিদেশি সংযোগ থাকলেই সেটি foreign।

---

Posted in: Banking Law & Practice | Series: Negotiable Instruments — Part 10 (Foreign Instruments)

Prepared for: Banking Professional Exam Assistant