During the Mughal Empire, a hundi was a type of letter of credit used for financial transactions. It played a crucial role in facilitating trade and commerce throughout the empire.

1. Definition and Purpose of a Hundi:
A hundi was a negotiable instrument that functioned as a promissory note or a bill of exchange. It was essentially a written order issued by one party, known as the drawer, to another party, known as the drawee, instructing them to pay a specified amount to a third party, known as the payee. The purpose of a hundi was to provide a safe and convenient method of transferring funds over long distances, as well as to extend credit to traders.

2. Types of Hundi:
There were different types of hundis, each serving a specific purpose in the financial system of the Mughal Empire:
- Darshani Hundi: This type of hundi was used for transactions within the same city or town, where the drawer and the drawee were located. It allowed for immediate payment to the payee upon presentation.
- Muddati Hundi: This hundi had a specified maturity date, after which the drawee was required to make the payment to the payee.
- Nam Jog Hundi: This hundi was payable only to the person whose name was mentioned in the instrument. It provided an added layer of security and prevented unauthorized individuals from receiving the payment.
- Jawabee Hundi: This type of hundi was payable on demand and did not have a specified maturity date. It allowed for quick and convenient transactions.

3. Function and Significance of Hundi:
The hundi system was widely used for both domestic and international trade during the Mughal Empire. It played a crucial role in facilitating long-distance trade and commerce by eliminating the need for physical transportation of money. Traders and merchants could rely on the hundi system to transfer funds securely and efficiently.

4. Role of Hundi in Trade and Economy:
The hundi system contributed to the growth and prosperity of the Mughal Empire's economy in several ways:
- Encouraged Trade: The availability of a reliable and efficient financial instrument like the hundi encouraged trade and commerce by reducing the risks and costs associated with transferring funds.
- Promoted Credit: The hundi system allowed for the extension of credit, enabling traders to conduct business even without immediate access to funds. This facilitated the growth of commercial activities.
- Facilitated Tax Collection: The Mughal Empire imposed various taxes on trade and commerce. The hundi system made tax collection easier as the transactions were recorded, providing a means to track and verify payments made by traders.

In conclusion, during the Mughal Empire, a hundi was a letter of credit used for financial transactions. It played a crucial role in facilitating trade and commerce by providing a safe and convenient method of transferring funds over long distances. The hundi system contributed to the growth and prosperity of the Mughal Empire's economy by encouraging trade, promoting credit, and facilitating tax collection.