CSEET · Business Communication · Common Business Terminologies
Mr. Iyer's current account shows that he has withdrawn more than the balance available, and the bank has allowed this up to an agreed limit. This facility is best described as:
The facility is an overdraft. It allows a customer to withdraw more than the balance in the account, up to a limit agreed with the bank, and interest is charged on the amount overdrawn. Deposits and letters of credit serve different purposes.
- AFixed deposit
- BOverdraftCorrect
- CRecurring deposit
- DLetter of credit
Explanation
An overdraft lets an account holder withdraw beyond the credit balance up to a sanctioned limit, and interest is charged on the amount overdrawn. A fixed deposit and a recurring deposit are savings products where money is placed with the bank. A letter of credit is a bank's undertaking to pay a seller on the buyer's behalf and is not a facility for overdrawing an account.
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