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Banker's Note or Acceptance
Banker’s note or acceptances are the less understood short-term money-market investments, nevertheless considered as good investments for individual investors. Banker’s acceptances are negotiable time drafts commonly issued for import-export transactions. For example, if the importers wish to pay goods at reception, not when shipped, they negotiate a time draft with its local bank to pay such goods upon arrival three or six months later. If the exporter does not wish to wait for its payment, the bank can collect the draft. The banking entity can then sell the draft to other investors that purchase this type of banker’s acceptance with a discount over its face value at maturity (when the importer pays the bank).
Due to the large amounts of money involved in these types of transactions, investors that predominate are central banks and not individual investors. Yields on banker’s acceptances generally are slightly lower than those of commercial papers and CDs.
Individual investors usually go to large commercial banks and dealers that negotiate with banker’s acceptances so as to purchase those that are accessible.
Typically amounts invested are $25,000 to $1 million. Bankers group banker’s acceptances in packages of the highest denominations. Individual investors mostly hold bankers acceptances indirectly through their investments in money-market mutual funds.