Definition: The Foreign Draft is a type of bank draft, which is used to send money to the foreign countries. The foreign draft can be purchased from the commercial banks, which is prepared in the local currency and then is forwarded to the intended institution in any country, where the currency is converted on the basis of the current exchange rate.
The individual or a firm initiating the foreign draft has to pay some fee for the service, the amount of fee depends on the type of account that individual holds in the particular bank. Once the foreign draft is prepared, it is sent to the recipient electronically, who in turn forwards this draft to his own bank where it is converted into the currency of that nation and gets deposited into the customer’s account.
People use a foreign draft as an alternative to foreign currency because of its several benefits. It is much cheaper and safer than the currency itself, being sent to the foreign country. Also, it enables the recipient to receive the funds much faster, thereby saving the interest and fee cost; that may accrue on account due to the late receipt of the payment i.e. after the due date.