Bankers acceptance, Financial Management

Bankers' acceptance is a debt instrument created to smoothen the commercial trade transactions. It is named so because a banker in this case accepts the ultimate responsibility for repayment of the loan to its holder. Like treasury bills and commercial papers, bankers' acceptances are also saleable at a discount.

Bankers' acceptances are considered very safe assets, as they allow traders to substitute the bank's credit standing for their own. They are used widely in international trade where the creditworthiness of a trader is unknown to the trading partner. Acceptances sell at a discount from face value of the payment order, just as US Treasury Bills are issued and trade at a discount from par value. Bankers acceptances trade at a spread over T-bills. The rates at which they trade are called bankers acceptance rates.

Posted Date: 9/8/2012 7:07:15 AM | Location : United States

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