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banker's acceptance - banking: a time draft

drawn on and accepted by a bank acceptance

bill of exchange, draft, order of payment - a

document ordering the payment of money;

drawn by one person or bank on another

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BANKER'S ACCEPTANCE (BA) is a money market

instrument that is issued in discounted form.

A banker's acceptance is created when a bankaccepts responsibility for payment of business

debt by signing a letter of credit. Banker's

acceptances are sold to acceptance dealers andmay be resold to numerous other parties before

the loan is repaid. The investor who last owns the

acceptance when the debt becomes due has a

right to collect from the borrower. Should theborrower default, the investor can also pursue

payment from the accepting bank.

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Bankers Acceptance

It is a short-term credit investment. It isguaranteed by a bank to make payments. TheBanker's Acceptance is traded in the

Secondary market. The banker's acceptance ismostly used to finance exports, imports andother transactions in goods. The banker'sacceptance need not be held till the maturity

date but the holder has the option to sell it offin the secondary market whenever he finds itsuitable.

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A short-term credit investment created by anon-financial firm and guaranteed by a bank.

'Banker's Acceptance - BA'

Acceptances are traded at a discount fromface value on the secondary market. Banker'sacceptances are very similar to T-bills and are

often used in money market funds.

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Bankers Acceptance -- A draft calling for

payment at a future date on which the drawee

is a bank, and the bank has agreed to pay by

signing "accepted" on the draft.

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banker's acceptance -- a draft drawn on a bank, whichwhen accepted by the bank, constitutes the bank'sobligation to pay the draft writer's bills from a specifiedcreditor when the bills are due. The bank literally

stamps "Accepted for payment by (name of bank) on(date)" across the face of the draft. Acceptanceconverts a depositor's "order to pay" into anunconditional "promise to pay" by the accepting bank.Bankers acceptances are effectively a guaranty of

payment for a purchase and are usually used infinancing the import, export, transfer or storage ofgoods, and qualify as liquid assets when held by a thriftinstitution.

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Banker's acceptance

A short-termcredit investment created by a

nonfinancial firm and guaranteed by a bank as

topayment. Acceptances are traded at discoun

ts to face value in the secondary market.

These instruments have been a popular

investment for money market funds. They are

commonly used in international transactions.

http://financial-dictionary.thefreedictionary.com/Short-termhttp://financial-dictionary.thefreedictionary.com/Credithttp://financial-dictionary.thefreedictionary.com/Firmhttp://financial-dictionary.thefreedictionary.com/Guaranteehttp://financial-dictionary.thefreedictionary.com/Acceptancehttp://financial-dictionary.thefreedictionary.com/Tradehttp://financial-dictionary.thefreedictionary.com/Discounthttp://financial-dictionary.thefreedictionary.com/Discounthttp://financial-dictionary.thefreedictionary.com/Face+valuehttp://financial-dictionary.thefreedictionary.com/Secondary+markethttp://financial-dictionary.thefreedictionary.com/Instrumentshttp://financial-dictionary.thefreedictionary.com/Money+markethttp://financial-dictionary.thefreedictionary.com/Transactionhttp://financial-dictionary.thefreedictionary.com/Transactionhttp://financial-dictionary.thefreedictionary.com/Money+markethttp://financial-dictionary.thefreedictionary.com/Instrumentshttp://financial-dictionary.thefreedictionary.com/Secondary+markethttp://financial-dictionary.thefreedictionary.com/Face+valuehttp://financial-dictionary.thefreedictionary.com/Discounthttp://financial-dictionary.thefreedictionary.com/Discounthttp://financial-dictionary.thefreedictionary.com/Tradehttp://financial-dictionary.thefreedictionary.com/Acceptancehttp://financial-dictionary.thefreedictionary.com/Guaranteehttp://financial-dictionary.thefreedictionary.com/Firmhttp://financial-dictionary.thefreedictionary.com/Credithttp://financial-dictionary.thefreedictionary.com/Short-termhttp://financial-dictionary.thefreedictionary.com/Short-termhttp://financial-dictionary.thefreedictionary.com/Short-term

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Banker's Acceptance

Short-term debt obligations that

are secured by banks. That is, a bank promises

to pay a creditor if a borrower defaults. It is

also called a documented discount note.

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Countersigning (endorsement) of a bill ofexchange by the buyer's (or importer's) bank.Bankers acceptance establishes that payment of

the bill on its maturity date is now guaranteed bythe endorsing bank. Banks agree to countersign abill of exchange when they are comfortable withthe buyer's financial strength and stability, and on

payment of the acceptance fee.

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A bankers' acceptance (BA) is a short-term

credit investment created by a non-financial

firm and guaranteed by a bank to make

payment. Acceptances are traded at discounts

from face value in the secondary market.

http://www.investopedia.com/terms/b/bankersacceptance.asphttp://www.investopedia.com/terms/f/facevalue.asphttp://www.investopedia.com/terms/s/secondarymarket.asphttp://www.investopedia.com/terms/s/secondarymarket.asphttp://www.investopedia.com/terms/f/facevalue.asphttp://www.investopedia.com/terms/b/bankersacceptance.asp

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Definition

Heres how it works: A customer of the bank will ask thebank to make a payment in the near future, usually inabout six months. When the bank agrees to this order, it isnow liable for that payment. Once the bank has signed offon the order, it can then be traded in the world financialmarkets, hence the name, a bankers acceptance. Peoplein the financial industry like bankers acceptances becausethey are considered very safe assets. This is also whytheyre so popular in terms of international trade andfinance, because its not easy to verify the solvency and

standing of the corporate or financial entity youre dealingwith. After all, theres only so much information a trader inLos Angeles can glean about a trader in Pakistan or Austria.

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Example of a Bankers Acceptance

for example, you own a furniture company in Miami. You want tobuy five very expensive sofas from a furniture manufacturer inSweden. However, you dont have the cash to buy the sofas andsince youve never worked with the manufacturer before youhavent established any credit with them. You do, however, have a

great credit record with your bank. So, you go to your bank and askthem to front you the cash for the sofas. The minute the bankaccepts your request, it is now liable to pay for the sofas, whichmakes the manufacturer in Sweden happy because they now knowthat the bank will pay for the sofas. So off they go to yourshowroom to be sold by you. As with all money market instruments

and other questions concerning how, when, and where to investyour money, be sure to sit down with a qualified financial servicesexpert and ask him or her all the questions you have on your mindbefore committing to an investment.

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A bankers acceptance (BA) is a money market

instrument: a short-term discount

instrument that usually arises in the course of

international trade

http://www.riskglossary.com/articles/discount_instrument.htmhttp://www.riskglossary.com/articles/discount_instrument.htmhttp://www.riskglossary.com/articles/discount_instrument.htmhttp://www.riskglossary.com/articles/discount_instrument.htm

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BANKERS' ACCEPTANCE FINANCING--THE

LINK TO FINANCING GLOBAL MARKET

ACTIVITY

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B/A Financing: Advantages & Disadvantages

Advantages:

* Permits seller of goods to offer buyer extended

payment terms while allowing for immediate funding. * Foreign users access the U.S. dollar market at lower

rates than might be available in their own countries.

* Rates are often lower than rates tied to prime.

* Cash flow, i.e., when goods underlying the B/A aresold, the proceeds are used to repay B/A.

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Disadvantages:

Financing can only be extended for a maximum of sixmonths for B/A to be considered eligible.

Federal Reserve regulations restrict this type of financing,e.g., underlying shipments must correspond to the tenor(terms of agreement) of the B/A.

Clearly, the bankers' acceptance can be an attractivefinancing alternative for merchandise acquired through theletter-of-credit vehicle. Although the B/A is frequentlymisunderstood, it is a relatively uncomplicated instrumentwhen the basic mechanics are clearly presented. Insummation, it is apparent that the use of bankers'acceptances has been instrumental in alleviating thefinancing constraints often associated with global marketactivity.

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Benefits:

More competitive financing rates

Low-cost alternative to loans Streamline the securitization of your Accounts

Payable

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WHAT IS A BANKERS ACCEPTANCE (BA)?

A bankers acceptance (BA) is a time draft drawn on a bank,typically to finance an international transaction where oneparty is unwilling to offer their goods or services oncredit. A banker's acceptance is issued by the customerand is an order for the bank to pay a provider of goods acertain amount of money at a predetermined date. Oncethe bank accepts this order, they are liable to pay thevendor of services. Basically, a banker's acceptance

enables a customer to use the banks credit rating tofinance their trsanction. The customer will owe the facevalue of the BA to the bank before the BA will be redeemedby the seller.

http://www.mysmp.com/bonds/credit-rating.htmlhttp://www.mysmp.com/bonds/credit-rating.htmlhttp://www.mysmp.com/bonds/credit-rating.html

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