Banker’s Acceptance - BA

  

Kind of like a Treasury bill but with fewer calories, a banker's acceptance is a promise of future payment, where a banker accepts the responsibility of paying a creditor at a later date on behalf of a borrower. The banker takes the risk in case the payer disappears into thin air. They're often used in international trade transactions since they're a safe way to exchange money in the short term.

A banker's acceptance can also be traded at a slight discount to the face value and held until maturity, sort of like a bond. 

Related or Semi-related Video

Finance: What are Face amount certificat...1 Views

00:00

Finance a la shmoop what are face amount certificates or FACs....F.A.C.S yeah like

00:09

just the facts man alright well they're a little bit like

00:11

an IOU or actually a lot like an IOU only face amount certificates are [IOU appears beside a FAC]

00:17

usually backed by a specific asset like a home or a rather a condo complex or an

00:23

asset of sizable value like a plane or a train or a fleet of cars an issuer says [Shmoop airlines plane in the sky]

00:29

something like well I guarantee you I'll pay you a thousand bucks either fully 14

00:34

years from now if you pay me five hundred seventy two dollars and twelve

00:38

cents today in cash or I may choose to pay you back two hundred bucks of that

00:44

thousand in installment payments every few years along the way and that's the

00:49

stream of payments how it would look with a less annoying voice yeah well [Stream of payments across 14 year]

00:53

it's bit in the vein of how t-bills are sold at auction they sell at a grand

00:58

in months later and get auctions for like nine hundred eighty two dollars and

01:03

twelve cents or something like that like you buy them at a discount and then

01:06

they mature to par and then get your par money back got it so like in

01:11

that case you made seventeen dollars and eighty eight cents....

01:14

well the big diff T-bills are backed by the US government while face amount [Uncle Sam carrying T-bill]

01:18

certificates are backed by uh you know aunt condos or worse well FAC's used to

01:24

have all kinds of tax advantages in that you didn't owe tax on them until the

01:28

face amount was paid but today the tax system requires that bonds or bond

01:33

values get marked to market each year so that if something is bought at a huge [Discount sticker appears over FAC]

01:38

discount while the owner of that bond pays the predicted gains taxes on that

01:43

bond all along the way yeah real party poopers there those

01:47

tax people not nearly as advantageous as being able to wait until the very end

01:52

pay the tax man because eventually he cometh.... [Tax man hand reaches out to grab an ant]

Up Next

Finance: What are Treasury Bills?
15 Views

What are Treasury Bills? Like other debt finance platforms, the US government issues its debt in several ways, and has different terms for each. Tr...

Finance: What is maturity?
1 Views

Maturity is, quite simply, the date when a debt becomes due. As for our maturity, well... we're still giggling about the word "due."

Finance: What is Term To Maturity?
12 Views

Term to maturity is kind of the life cycle of a bond, but luckily for the bond, it gets to skip puberty.

Finance: What is Yield to Maturity?
6 Views

What is Yield to Maturity? When calculating bond yields, the yield to maturity is the interest rate that an investor would ultimately accumulate if...

Find other enlightening terms in Shmoop Finance Genius Bar(f)