Bankers Acceptance & Eurodollars

If you are wanting a short-term credit investment that does not go through a financial institution but is still guaranteed by a bank, bankers’ acceptance (BA) may be the investment for you. These are typically traded through a secondary market and can be done so at a discounted amount from the original face value. What is nice about BAs is that they have a negotiable time frame for investing and does not have to be kept through to a maturity date–it can actually be sold off or traded in these secondary markets. These are most often used in international trade.

Eurodollars are actually not specifically related to Europe money market investments as one would automatically assume. They are actually oversea bank deposits figured off of the U.S. dollar. While they may have originated in London, the transactions can actually be anywhere outside of this country. 

Eurodollars are often transacted in extremely high denominations, so they are only within reach for serious high-dollar investors or those who are investing in money market funds through another institution. They are very similar in style to a certificate of deposit, being short-term securities (often six months or less in maturity). They are less liquid than domestic CDs, so their yields are typically higher. This is not a common way of investing money due to the high denominations, but they are growing in popularity due to their higher yields than domestic money market securities.

Leave a Reply

Your email address will not be published. Required fields are marked *