Discount

Discount, in Commerce, the sum allowed in reduction of payments made before they are due. Thus, if a bill of exchange for £100 payable one month after sight be paid at sight, the sum paid will be, not £100, but the sum which will produce such interest in one month as added to it would make £100; e.g. suppose the rate of interest were 6 per cent, per annum, or 10s. per cent. per month, the "present value" of such a bill would be £99 10s. In practice, an additional deduction is made for commission and for insurance against the risk of eventual non-payment, according.to the presumed solvency of the acceptor and endorsers, if any, of the bill. The whole deduction is popularly called discount. The "Bank rate of discount" is the rate at which the Bank of England will lend money for short periods on first-class security, the money being lent by discounting bills. It is fixed weekly by the Court of Directors, not, of course, that they can bind other discounters, but because, as the largest holders of loanable capital, their statement of their terms for loans more or less determines the "money market." The rate, of course, is high when loanable capital is scarce (e.g. either when trade is very brisk, or during a panic), and low when it is plentiful (as during trade depression). Discount on sales, for cash, arises with the development of commerce and the increased opportunities for "turning over" capital. To secure that as much of his capital shall be employed as possible, the seller reduces his price for cash, recouping himself out of the profits due to his increased turnover.