Thursday, September 17, 2009

Issuing Banker's Acceptances by International bank

Banker's Acceptances are time drafts used mainly to finance the shipment of goods or commodities. Similar to a letter of credit, the acceptance is a bank‘s promise to pay after a certain number of days, issued on behalf of one of its customers. It substitutes the bank‘s credit standing in place of the customer‘s credit standing.
with a banker‘s acceptance the bank agrees to pay a seller of goods when the time draft expires. for example, an exporter and importer may agree upon " 60-day sight" terms on the shipment of certain items, this tells us that the exporter will receive payment from a bank 60 days following the date when the issuing bank affirms that the drafts and certain documents associated with the transaction are in good order. Once this is affirmed, the issuing bank will stamp "Accepted" across the face of the draft. the bank‘s stamp is a guarantee of payment (in our example, in 60 days from date of the drafts), and it make the acceptance a negotiable instrument. the exporter may sell (discount) the acceptance to a bank or other investor and thereby receive payment before the draft‘s due date.
Acceptances have a number of desirable features for multinational banks and for exporters and importers of goods. they reduce risk associated with the shipment of goods by giving exporters a bank‘s guarantee of payment. That guarantee enables importers to tap numerous sources of supply and find those goods available on the best terms. Acceptances are a high-quality financial instrument used by banks as a reserve of liquidity. As we noted above, they may be discounted in advance of maturity with securities dealers and other commercial banks. Another advantage is that banks selling acceptances do not have to include the contingent liability associated with each acceptance as a deposit for purposes of calculating reserve requirements.

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