Tenor (of a Bill of Exchange) is the time span for which a bill is drawn (e.g. sight, 30 days after date, etc) and the merchant should deliver the ordered goods by the end of the tenor. The tenor of a financial contract refers to the amount of time left until it expires. It is generally used in the context of bank loans, insurance contracts, and derivative goods.
This term can also be applied to non-standard financial instruments, like derivative contracts. It is commonly used in this context to describe the risk of specific securities.
For instance, if a three-month bill is prepared and gets approved, it will mature in three months. As a result, the tenor of that bill is three months. Some investors or firms may strategically avoid securities with tenors longer than a specific time frame, based on their tolerance for risk and financial goals.
Use of this Term Sentences
- The tenor of a bill of exchange is the time span after which it matures.
- Higher tenor contracts are often regarded as highly risky.
- Knowing the tenor of a business arrangement is critical for assessing the risk level of the agreement and ensuring consistent working capital.
- The term tenor is commonly used in the context of bank loans and insurance contracts, whereas maturity is more commonly used in the context of treasury securities and bond funds.