Which money market instrument is used to finance imports and exports?

A banker's acceptance is a short-term credit investment created by a firm that allows it to finance the import or export of goods. It acts as a guarantee from a bank that a buyer’s payment will be received on a specified date, which minimizes the risk involved in international trade. When an importer seeks goods from another country, they may not have the funds available immediately. Therefore, the exporter can request payment through a banker's acceptance, which the bank endorses, ensuring that the exporter will receive payment.

The other instruments listed serve different purposes. A certificate of deposit is typically used for saving with a fixed term and fixed interest, not specifically for financing international trade. Commercial paper is an unsecured short-term debt instrument issued by corporations to finance short-term liabilities but is not directly tied to trade financing. Treasury bills are government-issued securities used for general funding but do not facilitate trade financing directly. Thus, the banker's acceptance is specifically designed to address the financing needs associated with imports and exports.