30 Questions
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.
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
What is the role of the bank in a banker's acceptance?
The bank becomes primarily liable for the payment on the maturity date.
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
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.
What is a third-country acceptance?
a bankers acceptance created to ship between countries where neither the importer nor the exporter is located
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.
What is the nature of a banker's acceptance?
A negotiable instrument or time draft drawn on and accepted by a bank.
What happens to the banker's acceptance after it is created?
It can be sold at a discount to investors.
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.
Why do local investors typically require lower yields than institutional investors?
Because they do not demand the high yields of institutional investors.
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.
What is the typical maturity period of bankers' acceptances?
Six months or less.
What is the benefit of banks purchasing and discounting bankers' acceptances of other banks?
They can be sold as short-term, low-risk assets.
What is the condition for bankers' acceptances to be readily sold at a predictable price?
Credit quality has not changed.
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.
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
How do banks typically finance the business community?
Through bill discounting method
What happens to a bill after it is accepted by a commercial bank?
It is known as a commercial bill
What is the typical duration of the grace period for a bill?
3 days
Who typically draws a bill of exchange in a business transaction?
The seller
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
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
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
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
What type of draft is used in this example?
A time draft
Why does Tokyo Tech ship the goods to NE Trading?
Because the terms and conditions of the letter of credit have been met
This lecture covers the definition, steps, and sequence of Banker's Acceptance (BA), including its characteristics, advantages, and risks, as well as its comparison with factoring. It explains how BA facilitates international trade and provides a unique financial instrument.
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