What is a banker's acceptance? How are they initiated? Why are they desirable for the exporter?
What will be an ideal response?
Answer: A draft, or bill of exchange, is a written order from the exporter telling the importer when and how much to pay. When properly contracted, a draft can become a negotiable instrument and trade in the secondary market. If the draft provides a specific payment date and is presented to the importer's bank, it becomes a banker's acceptance (BA) and the bank makes an unconditional promise to make payment upon maturity. A BA may sell in the secondary market like any other marketable security and the holder need not wait until maturity to liquidate. Thus, BAs facilitate trade by reducing risk and potentially speeding cash flows to the exporter.
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