Banker's acceptance

• Are money market instruments which are used to finance import or export transactions. These instruments are essentially checks and represents a bank's promise and ability to pay the face or principal amount on the stipulated maturity date. Maturities are generally less than 3months. Bankers Acceptances are viewed as money market instruments.

• A money market instrument created to facilitate international trade transactions. This instrument is highly liquid and safe because the risk of the trade transaction is transferred to the bank that "accepts" the obligation to pay the investor.

• BA
A draft or bill of exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill. When the merchant presents a letter of credit to their bank, the bank discounts it and stamps ACCEPTED on it. Hence, a letter of credit then becomes a banker's acceptance. The banker's acceptances can be sold in the secondary market to money market mutual funds.

• Short-term, low-risk marketable securities arising from bank guarantees of business transactions; are sold by banks at a discount from their maturity value and provide yields slightly below those on negotiable CDs and commercial paper, but higher than those on Government of Canada treasury bills.

• A short-term credit investment created by a non-financial firm and guaranteed by a bank as to payment. Acceptances are traded at discounts from face value in the secondary market. These instruments have been a popular investment for money market funds. They are commonly used in international transactions.

 Embedded terms in definition
 Bill of exchange
Commercial paper
Face value
Marketable securities
Maturity date
Maturity value
Money market fund
Money market mutual funds
Money market
Mutual funds
Mutual fund
Principal amount
Secondary market
Treasury bill
 Related Terms
 Trade acceptance

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