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Bank accepted bill:
- Type of commercial bill that is issued by a corporation that also incorporates the name of the bank as an acceptor.
- As a previous holder of the bill, the bank has endorsed the reverse of the bill when selling it.
- Is a form of OBS
- maturity ranges up to 180 days
- Doesn’t pay interest, is a discounted security
Roles of parties involved in the issuance of a bank accepted bill:
- Drawer: issuer of the bill. Secondary liability for repayment of the bill (after acceptor)
- Acceptor: undertakes to repay the face value to the holder of the bill at maturity. acceptor is usually a bank or merchant bank
- Payee: the party to whom the bill is specified to be paid (who receives the funds). Usually the drawer, but the drawer can specify some other party as payee.
- Discounter: the party that discounts the face value and purchases the bill. The provider or lender of the funds. May also be the acceptor of the bill.
- Endorser: the party that was previously a holder of the bill. Signs the reverse side of the bill when welling or discounting the bill. Order of liability for payment of the bill runs from acceptor to drawer and ten to endorser.
Commercial papers (or P note): (similar to bank accepted bill)
- Similar to a bank accepted bill:
- price calculated using the same formula as commercial bills
- Is a discounted security
- Short term debt finance
P note different to a bank accepted bill:
- No acceptor or endorser
- Unsecured investments
- No requirement for seller to endorse when resold
- Typically only corps with excellent credit rating can participate
- Sole liability is with the issuer
- Most P-notes are issued for 90 days