3 Answers

'A word formed from the initial letters of other words'

Example

U.K. is acronym for United Kingdom

USA= Acronym for 'United States of america 

Some would say that the letters must make a new word but this is debateable.

Acronym and initialism

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For acronyms used on Wikipedia, see Wikipedia:Acronyms.

Acronyms and initialisms are abbreviations formed from the initial components in a phrase or a word. These components may be individual letters (as in CEO) or parts of words (as in Benelux and Ameslan). There is no universal agreement on the precise definition of the various terms (see nomenclature) nor on written usage (see orthographic styling). In English and most other languages, such abbreviations historically had limited use, but their coinage and use became much more common in the 20th century. As a type of word formation process, acronyms and initialisms are viewed as a subtype of blending.

Taking the first letter or two and forming a new "word" : 
NATO (North Atlantic Treaty Organization)
SCUBA (Self Contained Underwater Breathing Apparatus)
OBAMA (One Big Ass Mistake, America)