BANKER'S ACCEPTANCE
Date: 2015-10-07; view: 559.
Advanced text for translation
Using a Banker's Acceptance.Banker's acceptances are used to finance goods that have not yet been transferred from the seller to the buyer. For example, suppose that Builtwell Construction Company wants to buy a bulldozer from Komatsu in Japan. Komatsu does not want to ship the bulldozer without being paid because Komatsu has never heard of Builtwell and realizes that it would be difficult to collect if payment were not forthcoming. Similarly, Builtwell is reluctant to send money to Japan before receiving the equipment. A bank can intervene in this standoff by issuing a banker's acceptance.
The transaction would begin with Builtwell obtaining a letter of credit from its bank. A letter of credit simply says that if Builtwell has not paid its obligation by a certain time, the bank will make payment. This particular letter of credit will also authorize the exporter (Komatsu or its bank) to draw a time draft for the amount of the sale. A time draft is like a postdated check: It can be cashed only after a certain date. Builtwell sends the order for the bulldozer, along with the letter of credit, to Komatsu.
When Komatsu receives these documents, it is willing to ship the equipment because the bank's credit standing has been substituted for that of the actual buyer. Once the equipment has been shipped, Komatsu will present the letter of credit and the shipping documents to its own bank in Japan. This bank will create the time draft authorized by the letter of credit and send it to Builtwell's bank. When Builtwell's bank receives the time draft and the shipping documents, it will stamp the time draft "accepted" and return it to Komatsu's bank. This accepted time draft is now a banker's acceptance. Because it is backed by the credit of a bank, it can be traded on the secondary market. Typically, the exporter's bank will sell it so that the exporter can receive funds before the maturity date. It will be sold at a discount so that the buyer can earn a fair return for holding it until its maturity date. The transaction is completed when Builtwell deposits the funds in its bank to cover the amount of the time draft (now a banker's acceptance). When the banker's acceptance finally matures and is presented for payment, the issuing bank withdraws funds from Builtwell's account to make payment. Of course, if for some reason Builtwell was unable to make the required deposit, its bank would pay the acceptance anyway and attempt to collect from Builtwell later.