Financial Industry Regulatory Authority (FINRA) Practice Exam 2025 - Free FINRA Practice Questions and Study Guide

Banker's acceptances are primarily used for financing international trade. This financial instrument plays a crucial role in facilitating transactions between importers and exporters. When a bank guarantees a buyer's payment to a seller for goods, it creates a banker's acceptance, which serves as a time draft drawn on the bank and accepted by that bank. This acceptance assures the seller that they will receive payment at a future date, typically within a short time frame, usually 30 to 180 days.

This arrangement is especially beneficial in international trade, where parties may be wary of the creditworthiness of foreign trading partners. By using banker's acceptances, the seller can mitigate risk since they are assured of payment backed by a reputable financial institution. The banker's acceptance can then also be sold in the secondary market, allowing the holder to access liquidity prior to the maturity of the acceptance.

In contrast, the other available choices do not accurately reflect the primary use of banker's acceptances. Financing personal loans involves consumer lending, which is unrelated to international trade. Short-term borrowing by the federal government typically involves instruments like Treasury bills rather than banker's acceptances. Funding municipal projects often relies on municipal bonds, which serve a different purpose entirely. Therefore, the use of banker's acceptances