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Negotiable

Negotiable

The term “negotiable” means the price of a good or security, which can be “under negotiation”, i.e. is not firmly settled. The word can be used for the price of good or security, which is easy to transfer from one party to another.

In finance, the term negotiable means a legal document which can be used instead of cash. A subject uses it to promise a payment the future. A negotiable instrument comes with specific instructions about the time when a cash flow needs to be paid.

A negotiable instrument has its specific characteristics. At first, it needs to be a written document signed by the entity drawing on the instrument. Secondly, it must have an order or promise to pay and contain a written amount of money. If these conditions are met, the negotiability of the document is confirmed. The instrument also contains instructions on timing (on-demand or in the future). However, if the document does not have a date, it does not impact its main characteristic - negotiability. A good example of a negotiable instrument may be a bill of exchange. It carries an order to pay a specific amount of money to an entity or a person.

The negotiable instruments are traded on the secondary market after the initial sale on the primary market. They may be divided based on risk as high-risk (negotiable securities) and low-risk (negotiable bonds).

In the stock market, one of the well-known negotiable securities is called ADR (American depositary receipt). In simple words, ADR stocks allow non-US companies to trade on US stock exchanges.

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