A letter of credit is a document
issued by a bank or financial institution, which authorizes the recipient
of the letter (the "customer" of the bank) to draw amounts of money
up to a specified total, consistent with any terms and conditions set forth in
the letter.
This is where the bank's customer
seeks to assure the seller (the "beneficiary") that it will receive
payment for any goods it sells to the customer.
In simple
terms, a letter of credit could be said to document a bank customer's line of
credit, and any terms associated with its use of that line of credit. Letters
of credit are most commonly used in association with long-distance and
international commercial transactions.
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