The New York herald., 1922-01-05
ACCEPTANCE NOW
/ HAS LARGE MARKET
Campaign Has Put 1t Into
Leading Place as Negotiable
and Liquid Paper.
AIDED BY RESERVE PLAN
Rapid Progress in Broadening
Discount Market Made
in Last Year.
AIDED BY RESERVE PLAN
BY ARTHUR X. sALoMoN.
Of Solomon Bros. & Hutslcr.

OF Solomon Bros. & Hutsicr
HOSE who recall the energetic cam
/ paign of the last few years,
designed 10 popularize the use
of acceptances as a financial medium,
I may not be aware how successful that
campaign has been. The acceptance,
which in 1914 virtually was unknown in
this country, has sprung into leading
place as a negotiable and liquid credit
! instrument. The reserve system, the
! founders of which must be credited with
unusual courage and foresight, laid the
foundation of the acceptance market In
this country by providing that reserve
banks might purchase or rediscount ac-
ceptances. In the earlier days of the
system a preferential rate was allowed
on acceptances above other forms of
commercial paper in recognition of the
superior llquidity and security of ac-
ceptances. The great scope of the mar
ket may be inferred from the fact that
at Is a common occurrence for any single
discount house or corporation to deal in
rs much as 100000 of acceptances
In day. Recently the Reserve Board
ruled that bankers acceptances, arising
out of foreign trade and having as much
as six months to run, might be purchased
BY reserve banks Previously the maxi
mum limit was three months maturity
From the long experience of London
and Continental markets we can profit
ably take over certain devices which
have been tested by time and proved
valuable in promoting the financial pres
tige of those centers.
One of the most striking characterls-
tics of the English money market (and
OF the English commodity and security
markets. for that matter) is the great
part played by forward transactions In
acceptances; in other words, futures.
The use of options or privileges, known
TO US as puts and calls. is common On
the London Stock Exchange. Copper,
silver and numerous other commodities
are bought and sold for future delivery.
Future transactions In foreign exchange
are common With us, on the other
hand, the tendency has been strongly In
the direction Of spot transactions, the
grain and cotton markets furnishing
perhaps the most notable exceptions.
Far from being merely device for
speculation. the future contract is an
essential of prudent and farsighted
business practice and its wider use In
men with safeguard in the conduct OF
their undertakings.
a forward market for acceptances, like
n forward market for most other things,
has this advantage, that It enables the
business man to know at once what the
result OF future transaction will be.
Assume. for instance that merchant
expects within the next three months TO
receive payment, In the shape of a bank
acceptance. for goods sold to customer
IN this country or abroad. He knows
what the face value of tho acceptance
will be, but he does not know what the
actual proceeds will be.
To-day's discount market may have
changed materially before he can present
his acceptance for discount or sale.
With a forward market available. he
can contract to deliver his acceptance
for discount within one, two or three
months at rate of discount based on
the present market. With regard to the
rate OF discount at which these contracts
viii be made. the spread between the
spot rate and the future rate naturally
will be determined by the buyers judg-
ment as TO future money market condi-
tions. Where 1t was believed that the
trend OF rates was distinctly downward,
IT might be that the rate for forward
transactions would be lower than the
spot rate. 1t is expected, however, that
the discount on future deliveries usually
will amount to about Il per cent.
month. That Is, IL the spot discount
rate is 6 per cent. the rate for thirty
day contracts would be 6s per cent.
that for sixty days, eA per cent. and
that for ninety days. 6% per cent. The
merchant will know at once what his
transaction viii net him.