letter of credit

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Related to Commercial letters of credit: Revocable letter of credit, Irrevocable Letters of Credit

credit, letter of

credit, letter of, commercial instrument through which a bank or other financial institution instructs a correspondent institution to advance a specified sum of money to the bearer. The document is called a circular letter of credit when it is not addressed to any particular correspondent. In effect, a letter of credit is a draft, save that the amount is merely stated as a maximum not to be exceeded. Letters of credit, mainly used by travelers, greatly simplify nonlocal business transactions. Those who issue such letters are usually so well known that any bank will honor the letter upon proper identification. Travelers' checks are a modified form of a letter of credit. They are issued in coupons, upon whose face a value is usually expressed in terms of the currency of a particular country. In the United States they are issued by express companies and banks. Circular letters of credit require that each payment, as it is made, be endorsed by the firm making payment so that other banks may know how much of the total credit has been used.
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References in periodicals archive ?
Insureds shipping goods under commercial letters of credit will have access to online and on-demand certificate issuance.
Hassan, 1992, "The Markets Perception of the Riskiness of Large Us Bank Commercial Letters of Credit", Journal of Financial Services Research, 6:207-221
As of April 30, 2005, the company had unutilized credit facilities of $11,047,000 available for direct borrowing or commercial letters of credit.

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