Financial Industry Regulatory Authority (FINRA) Practice Exam

Do banker's acceptances have long-term or short-term maturities?

1. Short-term

2. Long-term

3. Both

4. N/A

The correct answer is: Short-term

Banker's acceptances are primarily characterized by their short-term maturities, typically ranging from 30 to 180 days. They are used in international trade to facilitate transactions between buyers and sellers by providing a guaranteed payment. The issuer—often a bank—promises to pay the holder a specific amount on a specified date, which creates a secure and efficient mechanism for financing. This short-term nature is crucial for maintaining liquidity and managing risk in trading, as parties involved usually prefer payments to be settled quickly to minimize exposure to currency fluctuations and credit risks. Long-term maturities are not typical for banker's acceptances, as their design specifically caters to immediate financing needs rather than extended financial commitments.