Banker's Acceptance (BA)

What is created when the importer's bank stamps the time draft 'accepted'?

a bankers acceptance

What is the primary use of bankers' acceptances?

in the import or export of goods

What determines the credit quality of a bankers' acceptance?

the method by which the bank acquired the acceptance and the acceptance's terms

What is the primary purpose of a banker's acceptance?

To provide finance for international trade and create a financial instrument attractive to money market investors. Signup and view all the answers

What happens when a bank purchases an acceptance in the market?

the credit quality is that of the 'accepting' bank whose acceptance the bank purchases Signup and view all the answers

What is the role of the bank in a banker's acceptance?

The bank becomes primarily liable for the payment on the maturity date. Signup and view all the answers

What additional security does a bankers' acceptance provide to the holder?

secondary recourse to the account party (importer/buyer) in the event the accepting bank defaults Signup and view all the answers

What happens to the draft before acceptance by the bank?

The draft is not an obligation of the bank, it is merely an order by the drawer to the bank to pay a specified sum of money. Signup and view all the answers

What is a third-country acceptance?

a bankers acceptance created to ship between countries where neither the importer nor the exporter is located Signup and view all the answers

What is the benefit of a banker's acceptance to a commercial bank?

It allows the bank to provide credit to its customers without using the bank's own funds. Signup and view all the answers

What is the nature of a banker's acceptance?

A negotiable instrument or time draft drawn on and accepted by a bank. Signup and view all the answers

What happens to the banker's acceptance after it is created?

It can be sold at a discount to investors. Signup and view all the answers

What is the primary characteristic of bankers' acceptances that makes them attractive to institutional investors?

They are marketable, short-term investment instruments that are traded actively. Signup and view all the answers

Why do local investors typically require lower yields than institutional investors?

Because they do not demand the high yields of institutional investors. Signup and view all the answers

What is the significance of timely rate availability in acceptance financing?

It is crucial because rates on acceptance financing can move rapidly in a short time, and delayed quotes can result in losses for the bank. Signup and view all the answers

What is the typical maturity period of bankers' acceptances?

Six months or less. Signup and view all the answers

What is the benefit of banks purchasing and discounting bankers' acceptances of other banks?

They can be sold as short-term, low-risk assets. Signup and view all the answers

What is the condition for bankers' acceptances to be readily sold at a predictable price?

Credit quality has not changed. Signup and view all the answers

What is the purpose of a bill of exchange in a business transaction?

To reveal the liability to make the payment on a fixed date when the goods are bought on a mercantile basis. Signup and view all the answers

What type of bill is it when the seller provides some time for the payment of the bill payable at a future date?

Usance bill Signup and view all the answers

How do banks typically finance the business community?

Through bill discounting method Signup and view all the answers

What happens to a bill after it is accepted by a commercial bank?

It is known as a commercial bill Signup and view all the answers

What is the typical duration of the grace period for a bill?

3 days Signup and view all the answers

Who typically draws a bill of exchange in a business transaction?

The seller Signup and view all the answers

What is the purpose of Tokyo Tech paying a fee to have Suki Bank confirm the letter of credit?

To make Suki Bank liable should NE Trading and FNB fail to perform under the letter of credit Signup and view all the answers

What document is presented by Tokyo Tech to Suki Bank along with the shipping documents?

A draft, drawn on FNB, for the selling price of the goods Signup and view all the answers

What does Suki Bank examine before sending the draft and the shipping documents to FNB?

The documents presented to ensure they meet the terms and conditions of the letter of credit Signup and view all the answers

What does FNB do after comparing the documents with the letter of credit?

Furnishes NE Trading the documents, an advice of amount paid, and accepts the draft Signup and view all the answers

What type of draft is used in this example?

A time draft Signup and view all the answers

Why does Tokyo Tech ship the goods to NE Trading?

Because the terms and conditions of the letter of credit have been met Signup and view all the answers

Banker's Acceptance (BA) - Lecture 5

Choose a study mode

Podcast

Questions and Answers