Bankers' Acceptance

A bankers' acceptance (BA) is a short-term credit investment created by a non-financial firm and guaranteed by a bank to make payment. BAs are basically commercial paper with the added guarantee of a bank.

For corporations, a BA acts as a negotiable time draft for financing imports, exports, or other transactions in goods. This is especially useful when the creditworthiness of a foreign trade partner is unknown.

One advantage of a bankers acceptance is that they do not need to be held on until maturity. BAs are traded at a discount from face value in the secondary market. They can be sold off in the secondary markets where investors and institutions constantly trade BAs. As with all fixed income instruments however, your sale price - and thus your return - is not guaranteed if you sell prior to maturity.