MICHIGAN ACADEMY OF SCIENCE. 49 



bill is secured by warehouse, terminal or other similar receipt, or (4) The 

 storage within the United States of goods which have been actualy sold, pro- 

 vided the acceptor is secured by the pledge of such goods, or it must be a bill 

 drawn by a bank or banker in a foreign country or dependency or insular 

 possession of the United States for the purpose of furnishing dollar exchange." 



Thus we find acceptances, eligible for purchase by a Federal Reserve 

 Bank, restricted to those covering imports and exports ; to those necessary to 

 create dollar exchange in order to stabilize exchange rates between the United 

 States and foreign countries where there is a demand for exchange on the 

 United States and where the supply is very small ; to those drawn against cer- 

 tain produce, such as cotton, which is stored in warehouses waiting to be moved 

 to the final customer ; and finally to those arising out of foreign trade between 

 countries other than the United States. The last case should tend to develop 

 our country as a factor in the foreign banking of the woi'ld and our foreign 

 banking institutions as important instrumentalities in a new field of endeavor. 



The Trade Acceptance. As regards the trade acceptance, the Federal 

 Re.'-erve Board has defined it as "a bill of exchange drawn by the seller on the 

 purchaser of goods sold, and accepted by such purchaser. To be eligible for 

 purchase the bill must have arisen out of an actual commercial transaction, 

 domestic of foreign ; that it must be a bill which has been issued or drawn 

 for agricultural, industrial, or commercial purposes, or the proceeds of which 

 have been used or to be used for the purposes of purchasing, carrying or mar- 

 keting goods in one or more of the steps of the process of production, manu- 

 facture or distribution, and it must have at time of purchase a maturity of 

 not more than ninety days exclusive of days of grace." 



It should also be noted that acceptances are to be given a preferential 

 rate on the market, for, in its regulations, the Federal Reserve Board has 

 stated that, "Federal Reserve Banks should have in mind that preference 

 should be given whenever possible to acceptances indorsed by a member bank, 

 not only because of the additional protection that such indorsement affords, 

 but also because of the reason that acceptances discounted may be used as 

 collateral security for the issue of Federal Reserve notes." 



HISTORY OF THE ACCEPTANCE MARKET IN THE UNITED STATES. 



Let US now turn to a short history of the development of the acceptance 

 market in the United States. The actual growth of the use of the acceptance 

 may best be observed by studying the reports of the New York Federal Reserve 

 Bank, — the center of the acceptance market. The second annual report 

 (1915) states that it was not until after the derangement of international 

 credit facilities, at the opening of the European War, that the American 

 bankers' acceptances," especially those relating to foreign commerce, came to 

 be used to any large extent. After that time, several of the trust companies 



