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BPP KIT QUESTION

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › BPP KIT QUESTION

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • March 1, 2021 at 12:09 pm #612317
    ilham9089
    Member
    • Topics: 236
    • Replies: 176
    • ☆☆☆

    What role would the money market have in a letter of credit arrangement?

    Ans: Discounting the banker’s acceptance. Could you please explain this sir?

    March 1, 2021 at 3:31 pm #612370
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51543
    • ☆☆☆☆☆

    Suppose you owe me $10,000 payable in 1 months time. For me to be certain that I will receive the money you get a banker’s acceptance – this means that the bank guarantees that I will get the money in 1 months time.

    If I decide that need the money urgently and don’t want to wait a month, I can sell the acceptance to someone else and they will receive the money in a month’s time. However the buyer will not pay me the $10,000 for it (because they will not get it back for a month). They will pay me a bit less (as though they were charging me interest). So the pay me at a discount.

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