Definition: Negotiable, also known as marketable, refers to the price of a good or security that is not finalized yet. Alternatively, it may refer to cash that can be easily transferred between different parties.
What Does Negotiable Mean?
What is the definition of negotiable? The most common types of negotiable instruments are the promissory notes, cheques, bills of exchange, and banknotes. A negotiable instrument can be converted into cash only if it bears the signature of the owner or the entity that issues the instrument and includes an explicit, written order for a specific amount of payment on a specific date to a specific person or entity.
On the other hand, even if the instrument does not have a date, it is still valid for conversion into cash. A negotiable security is any financial instrument with a short-term maturity (less than a year), which can be easily converted into cash.
Let’s look at an example.
Company ABC is an American importer of fabrics that imports merchandise from China. The company works with promissory notes to maintain a good status and make timely payments to the Chinese exporter. With the promissory note, the US importer promises to pay the Chinese exporter a specific amount of US Dollars on a specified date in the future. So, the American company undertakes an unconditional responsibility to make a timely payment to the bearer of the promissory note, i.e. the Chinese company.
The promissory note signed by the US importer has the following form:
Define Negotiable: Negotiability means that something can be traded, purchased, transferred, or sold for consideration.