Acceptance credits are extended for both imports and exports, and also for domestic transactions. An acceptance letter of credit is an undertaking on the part of the bank to accept for financing purposes the drafts drawn, usually by exporters or importers in cover of their shipments. To illustrate: Eldridge & Company of Liverpool, England, are shipping cotton to Lamson & Company, New York. The New York merchant goes to his bank in New York and asks it to open a credit in favor of the shipper, Eldridge & Company, in Liverpool. If the bank grants the request, it authorizes Eldridge & Company to draw on it to the extent of the invoice, and usually signifies that invoices and the bills of lading and other documents must accompany the draft. On the strength of this letter of credit, Eldridge & Company take the draft drawn, we will say, for $3,000 to their own bankers at Liverpool who advance funds on it. The Liverpool bankers send the draft, with documents attached, to this bank located in New York. Upon its receipt in New York, if all documents and papers are in accordance with the credit, this bank accepts it, to mature ninety days after date of acceptance, and makes the following entries on its general ledger:

The accepted draft is then delivered to the presenting bank, usually the agent here of the foreign bank. The draft, of course, may be sold or kept by the presenter until the maturity date. The documents attached to the draft are usually delivered to the importer, in this case Lamson & Company, against his trust receipt so that he may be enabled to get his goods as soon as they arrive. A maturity tickler entry is, of course, made for the maturing acceptance, and usually a few days before its maturity the importer by agreement places the bank in funds to take up the acceptance. These funds are usually credited to a credit balance account called "acceptances anticipated" or some such title. On the due date the acceptance, of course, comes in and is paid by the bank, the charge being against the anticipated acceptance account, and the credit to cash or cashier's checks or customer's account. Another entry is made reversing the amount set up in the general ledger at the time the acceptance was made, the entries being:

Banks charge commission for the acceptance credit service and they also charge for the act of acceptance. Foreign Department Trading.- Traders in foreign departments are those whose function it is to buy and sell exchange, that is, to buy and sell title to bank balances abroad in the form of checks on foreign banks, cable transfers directing one foreign bank to pay another, and bills of exchange drawn for commercial and other purposes. The larger banks keep balances abroad in many foreign currencies, and the traders in an active trade department are constantly buying and selling against these balances. Just as soon as a contract to deliver or receive is entered into, the bank has committed itself either to receive exchange against dollars or to deliver exchange against the receipt of the converted amount in dollars. There are other transactions involving more than two currencies, but they need not be dealt with here. Assume that on May 15 this bank agrees to deliver some time during June a cable transfer for £4,000 sterling at the rate of $4.50. That means that it has agreed to deliver some time during June, usually at the option of the buyer, £4,000 sterling for 18,000 American dollars. The delivery will be made in the form of an order on a foreign correspondent of the selling bank to deliver £4,000 to the order of the buyer. That is an example of a future foreign exchange contract. Exchange contracts are of two kinds, spot and future. A "spot" contract is an agreement to receive or deliver exchange at a definite or determinable date, usually within several days of the date of the contract. There is no absolute line drawn between future and spot contracts. The main point to be brought out with respect to these contracts, however, is that when a contract is entered into, the bank has committed itself, and has thus incurred a liability, and that liability should be evidenced somewhere on its bookkeeping records.