What is a Banker’s Acceptance and when/how does it become a money market instrument?

What is a Banker’s Acceptance and when/how does it become a money market instrument?

Expert Solution

A Banker's Acceptance is a type of money market instrument which represents a guaranteed future payment by the bank. The payment is accepted and promised by the bank as a time draft to be drawn on a deposit. The draft states the amount of funds, the date of the payment and the institution/company to which the payment is owed.

It is necessary to recognize that Banker's Acceptance is a commitment on the accepting bank. Therefore, a payee can sell the bankers acceptance. Selling Banker's Acceptance means selling the time draft, but it will sell at a discount. The discount will be dependant on the time period left for the maturity and goodwill of the bank. Because of this, Banker's Acceptance is tradable in the money market and is an efficient short-term instrument. There is a huge secondary market for these instruments.

jeff jeffy answered 2 years ago

What are repos? How popular are they as a money market instrument compared to other money...

What are repos? How popular are they as a money market instrument compared to other money market options? Under what circumstances does engaging in a repo transaction makes sense? How important are expectations to the repo transaction?

Compare and contrast documentary letter of credit with documentary collection. What is banker’s acceptance?

2. What the process is by which a banker’s acceptance is created? Clearly state your answer...

2. What the process is by which a banker’s acceptance is created? Clearly state your answer to each problem. Answers without justification/explanation will not be given credit

List three examples of a money market instrument.

Money Market Hedges. How does a money market hedge differ for an account receivable versus that...

Money Market Hedges. How does a money market hedge differ for an account receivable versus that of an account payable? Is it really a meaningful difference?

How does financial institutions participate in money market?

The annualized discount rate on a particular money market instrument, is 4.25%. The face value is...

The annualized discount rate on a particular money market instrument, is 4.25%. The face value is $100,000, and it matures in 45 days. What is its price? What would be the price if it had 62 days to maturity?

Which money market is not created by a bank? Commercial paper Certificate of deposit Bankers acceptance...

Which money market is not created by a bank? Commercial paper Certificate of deposit Bankers acceptance Federal funds

For this question, specify what happens in the money market, goods market and labor market, when...

For this question, specify what happens in the money market, goods market and labor market, when appropriate (use IS-LM diagrams and AS-AD diagrams when necessary). 1. Explain using graphs and words why and how the AD curve shifts when money supply increases. 2. Explain using graphs and words why and how the AD curve shifts when there is an increase in the government spending. 3. Explain using graphs and words why and how the AD curve shifts if there is...

When does normal worry and fear become an anxiety disorder in children? How does a child’s...

When does normal worry and fear become an anxiety disorder in children? How does a child’s age play a role in determining what may be “normal” behavior versus an anxiety disorder? Provide examples in your answers.

Question