letter of credit

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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 draftdraft,
in banking, order by one party to another party to pay a stated sum to the person or firm in whose favor the draft is made. It is similar in form to the ordinary bank check. Often the drawer and the drawee of a draft are the same person.
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, 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.

letter of credit:

see credit, letter ofcredit, 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.
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References in periodicals archive ?
Bonds and guarantees can substitute for standby letters of credit, and payment can be effected via electronic wire transfer, rather than through the use of commercial letter of credit.(252) Given these opportunities, it is fair to say that beneficiaries or applicants who accept letters of credit, even those who act without reading(253) or bargaining over terms, have exercised their freedom to choose the resulting terms.
The most common type of commercial letter of credit is the irrevocable one.
These paths point to a deeper understanding of areas beyond the basic commercial letter of credit. The letter of credit is a form of agreement that may be regulated by local law, the Uniform Commercial Code, or by international convention, the Uniform Customs and Practice.
A beneficiary of a documentary or commercial letter of credit looks to the issuer, and not its debtor, for payment.

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