Which one of the following statements is correct about banker's acceptances?
A) They are equivalent to a sight draft.
B) They represent the norm for installment sales.
C) The bank guarantees payment of the invoice.
D) The bank retains title to the merchandise.

Question

Quizplus · Accepted Answer

Banker's acceptances are a type of trade finance instrument where a bank guarantees payment on behalf of a buyer for merchandise or services. This guarantee is represented by a written acceptance of a draft or bill of exchange drawn on the buyer. The bank effectively becomes the payer, and assumes responsibility for payment of the invoice when it matures. As such, the bank is essentially providing a credit facility to the buyer, who can then use the acceptance as a form of payment to the seller. This makes banker's acceptances a commonly used instrument in global trade and finance.

Which One of the Following Statements Is Correct About Banker's