Question

Explain how international corporations can Use bankers' acceptances to their advant

Answer 1

A banker’s acceptance is a time draft that businesses order from their banks to mitigate counterparty risk. It is like a post-dated check or an order for a bank to pay a specified party at a later date.

The international corporations can use banker's acceptance to their advantage by using banks and their credibility for selling their products to a company in another country as the bank will ensure the payments. For buyers, the payments are backed by bank will attract the seller more easily because of its trustworthiness. The low interest charges on banker’s acceptance make it more attractive for international corporations. It does not require liquid cash immediately therefore it increases the cash in hand of the corporation which they can use for other purposes.