ACCEPTING BANK Meaning and
Definition
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An accepting bank is a financial institution that actively engages in the acceptance of bills of exchange or negotiable instruments on behalf of their customers. As part of their services, accepting banks assume the responsibility of guaranteeing payment to the holder of the instrument at maturity.
Accepting banks play a pivotal role in facilitating international trade and promoting trust among the trading parties. When a seller intends to secure payment for their goods or services and has negotiated a bill of exchange with the buyer, they can present this instrument to an accepting bank for acceptance. Upon examining the bill and determining its authenticity, creditworthiness, and compliance with the agreed terms, the accepting bank will officially endorse the bill by writing "accepted" along with its signature. This act signifies the bank's commitment to honor the payment obligation when the bill matures.
By accepting the bill, the bank assumes the liability for the payment of the instrument and effectively becomes the guarantor. The acceptance provided by the bank enhances the bill's marketability and makes it more desirable for potential buyers as it reduces credit risk. In addition, acceptance by a reputable bank adds credibility to the instrument and promotes confidence in the transaction, helping to facilitate the smooth movement of funds in both domestic and international trade.
Overall, an accepting bank acts as a trusted intermediary, providing an essential service that promotes liquidity and fosters confidence in financial transactions involving negotiable instruments.
Etymology of ACCEPTING BANK
The term "Accepting Bank" originates from the combination of two words: "accept" and "bank".
The word "accept" comes from the Latin word "accipere", which means "to receive or take in". It was later adapted into Old French as "accepter" and then into Middle English as "accepten". In its general usage, "accept" refers to the act of agreeing to receive or take something.
The word "bank" has a different origin. It can be traced back to the Italian word "banco", which means "bench or counter". During medieval times, moneylenders in Italian cities would operate from benches or counters in public places, and these benches eventually became known as "banco". The concept spread across Europe, and the word was borrowed into various languages, including English.
