A bankers' acceptance ("BA") is essentially a
negotiable financial instrument used to raise short term funds in
the money market. It is a common form of short term borrowing at a
fixed rate in Canadian credit facilities.
How A BA Works
A BA consists of a draft containing a promise to pay a sum
certain at a specified date drawn by a borrower and stamped or
accepted by a bank. By accepting the draft, the bank assumes the
primary obligation to pay the principal face amount of the BA at
maturity.
The BA is rendered negotiable through an effective endorsement
by the borrower, enabling the BA to be sold at a discount by the
borrower (a) to a lender under a credit facility being provided to
the borrower or (b) if the borrower has sufficient distribution
capability (and usually only investment grade issuers have such
capability), directly to a purchaser in the secondary market. In
either case, the lender or purchaser may further negotiate the BA
or hold it until
