Banker’s Acceptance (BA)
What is a Banker’s Acceptance (BA)
Banker’s acceptance is a letter of credit that facilitates foreign trade. BAÕs are traded in the money market and have a maximum maturity of 270 days.
SecuritiesCE Explains Banker’s Acceptance (BA)
When importers purchase goods from exporters overseas each party needs to be assured that other is going to perform in good faith. The exporter wants to know that if they put the goods on a ship that they will be paid promptly. The importer wants to be assured that if they send the money to pay for the goods, that the goods will in fact be shipped to them in a timely fashion. A banker’s acceptance is a letter of credit promising to pay the face amount on a certain date in the future. It is almost like a post dated check. If the exporter wants to obtain the funds immediately they may sell the BA in the money market at a small discount to its face value or it may hold the BA until its maturity or payment date.