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COC-Bankers Acceptance Hanbook

COC-Bankers Acceptance Hanbook

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Published by: ncwazzy on Mar 18, 2011
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Bankers’ Acceptances
Comptroller’s Handbook
September 1999
Comptroller of the CurrencyAdministrator of National Banks
Comptroller’s Handbook
Bankers’ Acceptances
Table of Contents
Background 1Issuance of BankersAcceptances 1Process 1Discounting BankersAcceptances 3Clean BankersAcceptances 3Eligible Acceptances 4Financing Through a BankersAcceptance 6Financing Third-country Transactions 6U.S. Imports 6Pre-export 7Storage 7Domestic Transactions 8Dollar Exchange 9Other Matters of Interest 9Working Capital 9Prepayment 9Accounting Treatment 10Secondary Market for BankersAcceptances 11Characteristics of BankersAcceptances 13Credit Quality 13Marketability 14Liquidity 14Risks Associated with BankersAcceptances 14Transaction Risk 15Compliance Risk 15Credit Risk 16Liquidity Risk 17Foreign Currency Translation Risk 17Reputation Risk 18
General Procedures 19Quantity of Risk 20Quality of Risk Management 26Conclusion Procedures 32
Comptroller’s Handbook BankersAcceptances1
This booklet is designed to help examiners evaluate bankers’ acceptanceactivities. Some of the booklet’s topics are the acceptances:Purpose (what they finance).Eligibility to be purchased by the Federal Reserve.Accounting treatment.Risks.A bankers’ acceptance is created when a time draft drawn on a bank, usually tofinance the shipment or temporary storage of goods, is stamped “accepted” bythe bank. By accepting the draft, the bank makes an unconditional promise topay the holder of the draft a stated amount at a specified date.Many commercial traders in the United States and abroad have foundacceptance financing a convenient and relatively inexpensive vehicle to financetrade. Although acceptances can be created in any currency, in practice mostacceptances are created in the major world currencies such as the U.S. dollar,the Japanese yen, the German mark, and the British pound.
Issuance of Bankers’ Acceptances
By far the largest proportion of bankers’ acceptances are created as a result ofinternational trade transactions. The diagram in the appendix provides apictorial summary of an acceptance-generating trade transaction. Following isan example of a bankers’ acceptance created by a trade transaction (thenumbers in parentheses refer to steps in the appendix’s diagram):NE Trading is interested in purchasing 20 personal computers from Tokyo Tech(1). Since the two companies have never done business with each other, TokyoTech will require that NE Trading obtain a letter of credit. The letter of creditplaces the bank in the intermediary role to facilitate the completion of thetransaction.

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