A bank acceptance is a bill of exchange drawn on and accepted by a bank. It is a simple and high quality financial instrument. It can also be traded on a secondary market.

Historical Background.

• it is the oldest instrument of credit in the world

• it's origin is traced to at least fourth century BC

• traded commonly in England

• it has stood the test of time

Uses of Bankers Acceptance.

• enables sellers or exporters of goods to obtain funds immediately after the dispatch of their goods

• enables buyers or importers of goods to delay payment until goods reached them or until they have sold them.

• may also be used to finance movement of goods within the same country

• may be used to provide a clean line of credit

• may be  used in avoiding technical problems arising from the physical distance between buyers and sellers

• enhances the quality of a bill of exchange

Steps in creation Bankers Acceptance.

• an accepting bank satisfies itself of the client's financial standing

• once satisfied the Bank issues a letter of credit setting out terms and conditions under-which it is prepared to accept bills drawn on it

• a bill of exchange is drawn on the bank

• the bank signs, accepts the bill by signing on the surface of the bill thereby making it a bankers' acceptance

• the Bank discounts the Banker Acceptance with Continental Discount House at the ruling discount rate for the paper. The Bank receives the discounted value of the Bankers Acceptance