Regulations of the Federal Reserve Board

Definition

A trade acceptance is defined in simple terms as a draft or bill of exchange drawn by the seller on the purchaser of goods sold, and accepted by such purchaser.

Opinions Of Counsel And Rulings Relating to Trade Acceptances

Acceptance By Drawee

A draft to be eligible as a trade acceptance must be accepted by the drawee and not by anyone else.

Place Of Payment Of Acceptance

An acceptance to pay at a particular place different from the residence of the acceptor is a general acceptance, unless it expressly states that the bill is to be paid there and not elsewhere, and does not render the bill non-negotiable.

Discount For Prepayment

A trade acceptance providing for a fixed discount if paid at a certain time before maturity should not be approved for general use by the Federal Reserve Board.

Discount For Payment At Maturity

A trade acceptance which consists of an order to pay a certain amount which is the amount of the debt, minus a discount for prompt payment at maturity, or if not paid at maturity to pay a greater amount, which is the amount of the debt without any discount, is an order to pay a certain sum and is negotiable.

Eligible Drafts And Trade Acceptances General Statutory Provisions

Definition Of Eligible Paper

Eligible paper is defined in the law as follows: Notes, drafts and bills of exchange issued Of drawn for agricultural, industrial or commercial purposes, or the proceeds of which have been used or are to be used for such purposes, the Federal Reserve Board to have the right to determine or define the character of the paper thus eligible for discount. Notes, drafts and bills of exchange, secured by staple agricultural products, or other goods, wares or merchandise, are eligible, as well as are notes, drafts or bills drawn for the purpose of carrying on trading in bonds or notes of the Government of the United States.

Regulations Of Federal Reserve Board

Relating to Eligible Drafts and Trade Acceptances

Conditions Governing Eligibility

The Federal Reserve Board has determined that in order for a note, draft, or bill of exchange to be eligible for rediscount, the proceeds must have been used or are to be used in producing, purchasing, carrying or marketing goods, wares and merchandise in one or more of the steps of the process of manufacturing, producing or distributing.

Opinions Of Counsel And Rulings

Relating to Eligible Drafts and Trade Acceptances

Bills Based On Retail Transactions

A bill of exchange drawn by the seller of goods and accepted by the purchaser of those goods is a trade acceptance, according to the informal ruling of the Federal Reserve Board, regardless of whether or not the purchaser intends to resell the goods or to use them for his own purpose. It is, therefore, made possible for a retail dealer to finance the sale of his goods to a retail customer by means of the trade acceptance.