Acceptance Market – Bankers’ Acceptance

Introduction

In the Bill Market, sometimes the seller does not trust the buyer's creditworthiness. This is where the Acceptance Market steps in.

1. Concept of "Acceptance"

• A Seller creates a bill.
• The Buyer asks his Bank to "Accept" (Guarantee) the bill.
• The Bank stamps "Accepted" on the bill.
• Now the Bill becomes a Banker's Acceptance.
• The Seller is now happy because the Bank is liable to pay if the buyer defaults.

2. Bankers' Acceptance (BA)

• It is a money market instrument.
• Since it is guaranteed by a bank, it becomes highly liquid and safe.
• It can be easily traded in the secondary market.

3. Difference: Commercial Bill vs Bankers' Acceptance

Summary

• Problem: Seller doesn't trust Buyer.
• Solution: Bank adds its Guarantee (Acceptance).
• Result: Bill becomes a liquid "Banker's Acceptance".

Quiz Time! 🎯

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