Bankerís Acceptances

Bankerís Acceptances (Bas) are issued by a corporation seeking to borrow at least $500,000. The types of corporations that issue BAs may be less well-known companies than those that issue commercial paper. To create the BA, the corporation completes a special short-term debt instrument, which it then presents to one of the major Canadian banks for guarantee. When the bank ďacceptsĒ the instrument, it assumes irrevocable liability for the debt, thus giving rise to the term ďbankerís acceptance.Ē

A BA is thus a debt instrument by which the issuing corporation borrows money from investors with evidence of a bankís acceptance as the guarantee that the investor will be repaid. A BA is also known as a bearer deposit note when it has been issued directly by a financial institution.† They are a low risk choice for those whose investment objectives are interest income combined with liquidity. Because BAs are guaranteed, the investor is certain to receive both principal and a return in the form of interest on maturity of the investment.

Investors can buy BAs from their bank or other financial institutions, as well as through investment dealers.

Bankerís Acceptances offer a slightly higher rate of return than provincial Treasury bills. They are issued at a discount to face value, and their return is in the form of interest and is taxed accordingly. Note that Bankerís Acceptances are not covered by the Canada Deposit Insurance Corporation, and †are not eligible for Registered Retirement Savings Plans (RRSPs) or Registered Retirement Income Funds (RRIFs).

BAs are available in terms ranging from one month to one year, although one to three months is most common. The minimum amount of investment varies considerably between institutions offering the product, with minimum investment between $50,000 and $500,000. In some cases, Canadian-issue BAs are also available denominated in U.S. dollars.

Bankerís Acceptances can be sold prior to maturity at market prices.† As well, investors face interest rate risk when their BA matures.† This simply means there are no guarantees that when the BA matures it can be rolled over at the same or a higher rate of interest.

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