Legal Definitions - bank acceptance

Bank acceptance refers to a type of negotiable instrument called a banker's acceptance. This is a bill of exchange that is drawn on and accepted by a commercial bank. Banker's acceptances are often used to finance international trade.

For example, if a company in the United States wants to buy goods from a company in China, they may use a banker's acceptance to facilitate the transaction. The U.S. company would ask their bank to issue a banker's acceptance, which the Chinese company would then accept. The bank would guarantee payment to the Chinese company when the bill matures.

Banker's acceptances are considered to be very safe investments because they are backed by the creditworthiness of the bank that issued them. They are often used by investors as a way to earn a low-risk return on their money.