banker's acceptance ( BA)
A short-term financial instrument that is the unconditional obligation of the accepting bank. Banker's acceptances, or BAs, arise from transactions involving the import, export, transit, or storage of goods, including domestic as well as international transit. For investors, it is very important to realize that the underlying transaction that gives rise to a BA is almost completely irrelevant to the credit quality or the liquidity of the instrument. The actual BA is created at a late stage in the underlying transaction when a bank accepts its obligation to pay the holder of the accepted draft. In other words, when the transaction becomes a BA it becomes an unconditional obligation of the accepting bank. From an investor's point of view, a BA is a bank obligation that has at least the same credit strength as any CD issued by the same bank.
Typically, BAs are stronger than CDs because, in addition to the credit strength of the accepting bank, BAs are backed by the credit strength of a drawer; an endorsing bank, if one is involved in the transaction; and usually by the pledge of documents representing ownership of the trade goods and insurance on the goods. BAs do not, however, carry federal deposit insurance. BAs are considered safe, liquid, short-term money market investments. For bank holders of BAs, an additional issue is called eligibility.
See eligible banker's acceptances. American Banker Glossary
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A short-term credit investment created by a nonfinancial firm and guaranteed by a bank as to payment. acceptances are traded at discounts to face value in the secondary market. These instruments have been a popular investment for money market funds. They are commonly used in international transactions. Bloomberg Financial Dictionary
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banker's acceptance (also bank bill) noun [C or U] BANKING, FINANCE
► a bill of exchange (= document ordering payment of a particular amount) which has been accepted and signed by a bank that promises to pay the amount stated: »
The requested loan would be completely safe for the company, as it would be guaranteed by banker's acceptance.
Financial and business terms. 2012.