Econmics

1. THE CREATION OF A BANKERS ACCEPTANCE

Acceptances arise most often in connection with international trade: U.S. imports

and exports and trade between foreign countries.1 An American importer

may request acceptance financing from its bank when, as is frequently the case

in international trade, it does not have a close relationship with and cannot

obtain financing from the exporter it is dealing with. Once the importer and

bank have completed an acceptance agreement, in which the bank agrees to

accept drafts for the importer and the importer agrees to repay any drafts the

bank accepts, the importer draws a time draft on the bank. The bank accepts

The author, former assistant economist at the Federal Reserve Bank of Richmond, would like

to thank Lawrence Aiken of the Federal Reserve Bank of New York, Walker Todd of the

Federal Reserve Bank of Cleveland, and Tim Cook and John Walter of the Federal Reserve

Bank of Richmond. The views expressed in this article are those of the author and do not

necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve

System.

1 Although acceptances may be created by entities other than banks--such acceptances are

referred to as "trade acceptances"--the term "acceptance" in this article will refer to bankers

acceptances only.

Federal Reserve Bank of Richmond Economic Quarterly Volume 79/1 Winter 1993 75

76 Federal Reserve Bank of Richmond Economic Quarterly

the draft and discounts it; that is, it gives the importer cash for the draft but

gives it an amount less than the face value of the draft. The importer uses the

proceeds to pay the exporter.