letter of credit

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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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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.
References in periodicals archive ?
521, 528 ("Thus the commercial letter of credit arises most often between parties that know little of each other or are in distant markets and, when at least one party is located in a developing economy.
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.
The most common type of commercial letter of credit is the irrevocable one.
At least one plausible conceptual account of the letter of credit remains that is consistent both with the new, surprising empirics and the old idea that the commercial letter of credit is primarily an atomic element of the payment system.

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