borrower is unable to pay the face value of the acceptance and the risk that the accepting bank will not be able to redeem the paper. For this reason, the rate paid on a bankers acceptance will trade at a spread over the comparable maturity risk-free benchmark security (e.g., U.S. Treasury bills). Investors in acceptances will need to know the identity and credit risk of the original borrower as well as the accepting bank.   Eligible Bankers Acceptances An accepting bank that chooses to retain a bankers acceptance in its port- folio may be able to use it as collateral for a loan obtained from the central bank during open market operations, for example, the Federal Reserve in the United States and the Bank of England in the United Kingdom. Not all acceptances are eligible to be used as collateral in this manner, as the acceptances must meet certain criteria as specified by the central bank. The main requirements for eligibility are that the acceptances maturity must not exceed a certain maturity (a maximum of six months in the United States and three months in the United Kingdom) and that it must have been created to finance a self-liquidating commercial transaction. In the United States, eligibility is also important because the Federal Reserve imposes a reserve requirement on funds raised via bankers acceptances that are ineligible. Bankers acceptances sold by an accepting bank are potential liabilities of the bank but reserve requirements impose a limit on the amount of eligible bankers acceptances that a bank may issue. Acceptances eligible for deposit at a central bank offer a lower discount rate than ineli- gible ones and also act as a benchmark for prices in the secondary market. GLOBALMONEYMARKETS     FUNDING AGREEMENTS   Funding agreements (FAs) are short-term debt instruments issued by insur- ance companies. Specifically, a funding agreement is a contract issued by an insurance company that provides the policyholder the right to receive the coupon payments as scheduled and the principal on the maturity date. These contracts are guaranteed by the insurers general account or a sepa- rate account. FAs are not publicly traded and therefore are less liquid than other money market instruments such as commercial paper. In recent years, medium-term notes (U.S. MTNs and Global MTNs) have become increasingly popular. These are securitizations whose cash flows are backed by a portfolio of FAs. Moodys estimates in 2000 the amount of securities outstanding backed by FAs was approximately $20 billion.4 Coupon rates may be either fixed or floating. Reference rates have included U.S, Treasury rates, LIBOR, commercial paper rates, the federal