Definition

Noun: * A banker's acceptance: A financial instrument, specifically a time draft (a type of bill of exchange payable at a future date) that has been drawn on a bank and, more importantly, accepted by that bank. The bank's acceptance signifies its unconditional guarantee to pay the holder the face value of the draft at maturity. It is a key instrument in trade finance, used to facilitate transactions, particularly in international trade, by substituting the bank's creditworthiness for that of the purchaser.

Usage Examples

• Noun:
  • The exporter requested payment via a banker's acceptance to ensure they would receive funds on the specified date.
  • Because the draft was backed by a major bank, the banker's acceptance was easily sold in the money market at a discount.
  • Using a banker's acceptance reduces the risk for the seller, as the bank assumes the payment obligation.

Advanced Usage

• As a money market instrument: Once accepted, a banker's acceptance becomes a negotiable instrument that can be bought and sold (discounted) in the secondary money market before its maturity date. This provides liquidity to the holder.
• In trade transactions: It is commonly used in documentary collections and letters of credit to bridge the time gap between shipment of goods and payment, providing security to both buyer and seller.

Variants and Related Words

• Acceptance (n): The act of accepting something; in finance, specifically the act of signing a draft to acknowledge the obligation to pay it. A banker's acceptance is a type of acceptance.
• Time Draft (n): A bill of exchange that is payable at a specified future date. A banker's acceptance is created from a time draft.
• Trade Acceptance (n): A similar instrument where the draft is accepted by the buyer (the importer) rather than a bank, carrying a higher risk than a banker's acceptance.

Synonyms

• Bank Acceptance: A direct synonym.
• BA: A common abbreviation in financial contexts.

Related Terms (Not Phrasal Verbs)

• To Accept a Draft: The action a bank takes to create a banker's acceptance, by stamping "ACCEPTED" and signing the time draft.
• Discounting: The process of selling a banker's acceptance before maturity for its present value, which is less than its face value.

Noun

1. banking: a time draft drawn on and accepted by a bank