What is a bank draft?

A bank draft is essentially a check that is drawn by one bank on another bank. It is a secure form of payment because it is guaranteed by the issuing bank, meaning that the funds are reserved at that financial institution for the draft. When someone uses a bank draft, they are typically transferring funds from one bank to another without requiring the recipient to worry about the possibility of insufficient funds that can occur with personal checks.

In practice, bank drafts are often used for large transactions where the seller wants a guaranteed form of payment, such as for real estate transactions or large purchases. The issuing bank ensures that the funds are available, thereby minimizing the risk of the transaction failing due to bounced checks or lack of sufficient funds.

The other options refer to different financial mechanisms: a cash withdrawal from an ATM represents a direct withdrawal from an account, a check issued from a personal account is a direct payment that carries the risk of insufficient funds, and a bond issued by a bank is a form of debt instrument used to raise funds, unrelated to the concept of a bank draft. Therefore, the definition of a bank draft being a check drawn by one bank on another aligns perfectly with its function and security features.