Banker's Acceptance | Definition | What is it?

Banker's Acceptance

Banker's Acceptance Glossary Definition

(1) A short-term credit investment created by a non-financial firm and guaranteed by a bank as to payment. Acceptances are traded at discounts from face value in the secondary market. These instruments have been a popular investment for money market funds. They are commonly used in international transactions.

(2) An irrevocable obligation of an issuing bank and the borrower, whereby both are liable for payment. Used in domestic and/or international trade or commerce to finance the shipment and storage of goods or to facilitate dollar exchange transactions with foreign banks.

A banker's acceptance is a stronger instrument than a bank CD; there is no record of an investor sustaining a principal loss on an acceptance of a US bank. Because of the varying dollar amounts involved in international and domestic trade transactions, acceptances are available in a wide variety of principal amounts. Maturities can range from any number of days (usually 30-60-90) up to a legal maximum of 180. Rates are posted and changed infrequently.

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