Definition of the word demand draft

The term "demand draft" refers to a type of payment instrument, commonly used in banking transactions. It is also known as a "banker's check" or "cashier's check." The word "demand" in this context means that the draft is payable on demand, which means that the recipient can present it for payment immediately, and the issuing bank is obligated to honor it, provided that sufficient funds are available. The word "draft" refers to a written order by which one person (the drawer) instructs another (the drawee, which is typically a bank) to pay a specific sum of money to a third person (the payee). In essence, a demand draft is a preferable mode of payment to a traditional personal check because it eliminates the risk of insufficient funds or bounced checks for the payee since the funds are guaranteed to be available at the time of the transaction. The demand draft also facilitates cross-border payments, as it eliminates the risk associated with international wire transfers, such as exchange rate fluctuations or the potential for currency controls in the recipient's country. In summary, the origin of the term "demand draft" can be traced back to the context of drafts being payable on demand by the drawee bank, providing a secure form of payment to the payee.