to fund the transaction using acceptance financing. The terms of the transaction are that payment must be made by PCs For Less within 60 days after the PCs have been shipped to the United Kingdom. In deter- mining whether it is willing to accept the £1 million, Kameto Ltd. must calculate the present value of the amount because it will not be receiving this sum until 60 days after shipment. Therefore, both parties agree to the following terms:   ■ PCs For Less arranges with its bankers, ABC Bank plc to issue a letter of credit (LOC, also known as a time draft). The LOC states that ABC Bank plc will guarantee the payment of £1 million that PCs For Less must make to Kameto 60 days from shipment. The LOC is sent by ABC Bank to Kametos bankers who are Samurai Bank. On the receipt of the LOC, Samurai Bank notifies Kameto, who will then ship the PCs. After the PCs are shipped, Kameto presents the shipping docu- ments to Samurai and receives the present value of £1 million. This completes the transaction for Kameto Ltd. ■ Samurai Bank presents the LOC and the shipping documents to ABC Bank plc. The latter will stamp the LOC as "accepted," thus creating a bankers acceptance. This means that ABC Bank plc agrees to pay the holder of the bankers acceptance the sum of £1 million on the accep- tances maturity date. PCs For Less will receive the shipping documents so that it can then take delivery of the PCs once it signs a note or some other financing arrangement with ABC Bank plc.   At this point, the holder of the bankers acceptance is Samurai Bank and it has the following two choices available: (1) the bank may retain the bankers acceptance in its loan portfolio or (2) it may request that Bank ABC plc make a payment of the present value of £1 million. Lets assume that Samurai Bank elects to request payment of the present value of £1     million. Now the holder of the bankers acceptance is ABC Bank plc. It also has two choices that it can make: (1) it may retain the bankers accep- tance as an investment or (2) it may sell it another investor. Once again, assume it chooses the latter, and one its clients, Adam Smith Investors, is interested in a high-quality security with same maturity as the bankers acceptance. Accordingly, ABC Bank plc sells the acceptance to Adam Smith Investors at the present value of £1 million calculated using the rel- evant discount rate for paper of that maturity and credit quality. Alterna- tively, it may have sold the acceptance to another bank, such as Palmerston Bank plc that also creates bankers acceptances. In either case, on the maturity of the bankers acceptance, its holder presents it to ABC Bank plc and receives the maturity value of £1 million, which the bank in