A banker's acceptance
A) is a draft drawn on a bank and paid by that bank when presented to it.
B) may be accepted by the bank for future payment.
C) is traded in a relatively liquid market until maturity.
D) all of these.

Question

Quizplus · Accepted Answer

A banker's acceptance is a draft or bill of exchange that is drawn on and accepted by a bank. The bank accepts the obligation to pay the face value of the instrument at maturity. Therefore, option A is correct. Banks may also accept a banker's acceptance for future payment, making it a useful financing tool. Hence, option B is also correct. And finally, since banker's acceptances are traded on a secondary market, they are considered to be relatively liquid instruments until maturity. Thus, option C is also correct. Therefore, the best answer is D, i.e., all the given options are correct.

A Banker's Acceptance