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Simple English definitions for legal terms
banker's acceptance
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A quick definition of banker's acceptance:
Banker's acceptance is a type of financial document that is issued by a commercial bank. It is a promise made by the bank to pay a certain amount of money at a future date. This document is often used in international trade to finance the sale of goods. It is a way for the seller to ensure that they will receive payment for their goods, and for the buyer to have a guarantee that the goods will be delivered. Banker's acceptance is a legal and binding agreement between the bank and the parties involved in the transaction.A more thorough explanation:
A banker's acceptance is a type of negotiable instrument that is drawn on and accepted by a commercial bank. It is often used to finance international trade transactions.
For example, if a company in the United States wants to buy goods from a company in China, they may use a banker's acceptance to facilitate the transaction. The U.S. company would ask their bank to issue a banker's acceptance, which the Chinese company would then accept. The bank would then guarantee payment to the Chinese company at a later date.
Banker's acceptances are considered to be very safe investments because they are backed by the creditworthiness of the bank that issued them. They are often used by investors as a way to earn a low-risk return on their money.