can someone plz confirm if this is right, or if not, can you correct me where I’m wrong? or if theres anything you want to add. I’m just trying to understand BA’s. thx!
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If a company is involved in a trade, and it is concerned about receiving payments from the other company, it can go to the bank and ask for a Bankers Acceptance. The bank willl then assess hte credit of the other company and if everything goes well, they will agree to issue a Bankers Acceptance guaranteeing the payment. Then, fi the other company defaults, the bank will have to pay the amount.
The bank then sells these BA’s off to other investors in the secondary market. Its just like a loan, where the investor will pay interest to the bank for receiving the BA. Then the investors sell to each other, and the demand/supply for these BA’s is how the BA rate is determined.
Since the bank’s name appears on the BA, the BA’s value changes depending on the credit risk of the bank. If the bank’s credit risk goes down, the value of the BA will decrease and thus the BA rate will increase.
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If a company is involved in a trade, and it is concerned about receiving payments from the other company, it can go to the bank and ask for a Bankers Acceptance. The bank willl then assess hte credit of the other company and if everything goes well, they will agree to issue a Bankers Acceptance guaranteeing the payment. Then, fi the other company defaults, the bank will have to pay the amount.
The bank then sells these BA’s off to other investors in the secondary market. Its just like a loan, where the investor will pay interest to the bank for receiving the BA. Then the investors sell to each other, and the demand/supply for these BA’s is how the BA rate is determined.
Since the bank’s name appears on the BA, the BA’s value changes depending on the credit risk of the bank. If the bank’s credit risk goes down, the value of the BA will decrease and thus the BA rate will increase.
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