How is a trade acceptance created? Whose liability is it? Can it be sold in the international money market?

Question

What will be an ideal response?

Answer 1

By accepting a time draft, the importer acknowledges his legal obligation to pay the face amount of the draft at maturity, which is usually 30, 60, or 90 days after the date of the acceptance. An accepted draft is known as a trade acceptance. It can be retained by the collecting bank on behalf of the exporter for presentation to the importer at maturity, or it may be returned to the exporter. At maturity, the draft is presented by the collecting bank to the importer, who must pay the face amount. The funds are then transmitted to the remitting bank for payment to the exporter.
With a D/A collection, the exporter gives up title to the goods in exchange for the legally binding commitment of the importer to pay the trade acceptance. Hence, it is important for the exporter to understand the creditworthiness of the importer.
The exporter can sell the trade acceptance in the short-term money market to obtain financing. Of course, the sale of a trade acceptance is done at a discount that reflects both the time value of the money in which the acceptance is denominated and the money market's perception of the default risk of the importer.