letter of credit

An obligation issued by a bank on behalf of a bank customer to a third party. There are many different kinds of letters of credit. The two most common are commercial letters and standby letters. A commercial or trade letter of credit is a bank promise to pay the third party for the purchase of goods by the bank's customer. A standby letter of credit is a bank promise to pay the third party in the event of some defined failure by the bank's customer, usually, but not always, a failure to pay. Standby letters of credit are often used as credit enhancements for securities. American Banker Glossary
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( LOC/ LC/ L/C )
A form of guarantee of payment issued by a bank on behalf of a borrower that assures the payment of interest and repayment of principal on bond issues. Bloomberg Financial Dictionary

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letter of credit ˌletter of ˈcredit written abbreviation l/​c noun letters of credit PLURALFORM [countable] FINANCE
1. in foreign trade, a written promise by an importer's bank to pay the exporter's bank on a particular date or at a particular time after the goods are sent by the exporter:

• Coffee buyers in Central America are required to have proof of financing, such as a letter of credit.

conˌfirmed ˌletter of ˈcredit FINANCE
a letter of credit that a bank promises to pay, even if the bank that made it available does not. This gives exporters more confidence that they will receive payment
irˌrevocable ˌletter of ˈcredit FINANCE
a letter of credit that the importer's bank cannot refuse to pay, even if, for example, the importer says there is a problem with the goods:

• The irrevocable letter of credit confirmed on a US bank surely saved us from a very bad debt situation.

ˌrevocable ˌletter of ˈcredit FINANCE
a letter of credit that the importer's bank can refuse to pay, if, for example, there is a problem with the goods
ˌstandby ˌletter of ˈcredit FINANCE
a written promise by a bank to pay a bill etc if the person or company that should pay fails to do so
2. when bonds are sold, a written promise by a bank that it will repay the bonds to lenders if the borrower is unable to repay them:

• The notes are backed by a letter of credit from Morgan Guaranty Trust Co.

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   ► See L/C.

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letter of credit UK US noun [C] (plural letters of credit) (ABBREVIATION L/C)
FINANCE, COMMERCE a financial document in which a bank formally promises to pay a particular amount of money into the bank of a person selling goods if the goods are delivered by an agreed date and in an acceptable condition. Buyers often use letters of credit to buy goods from other countries: »

The bank issued the letter of credit on the instructions of the importer.

»

For export sales, the price of the goods are secured by a letter of credit.

FINANCE in a situation in which bonds, etc. are sold, a written promise by a bank to pay the lender if the borrower is unable to do so: »

The notes are secured by bank letters of credit.

See also CONFIRMED LETTER OF CREDIT(Cf. ↑confirmed letter of credit), DOCUMENTARY LETTER OF CREDIT(Cf. ↑documentary letter of credit), IRREVOCABLE LETTER OF CREDIT(Cf. ↑irrevocable letter of credit), CONFIRMED LETTER OF CREDIT(Cf. ↑confirmed letter of credit), STANDBY LETTER OF CREDIT(Cf. ↑standby letter of credit)

Financial and business terms. 2012.

Look at other dictionaries:

  • letter of credit — letter of credit: a document issued to a beneficiary at the request of the issuer s customer in which the issuer (as a bank) promises to honor a demand for payment by the beneficiary in order to satisfy or secure the customer s debt compare… …   Law dictionary

  • Letter of credit — Credit Cred it (kr[e^]d [i^]t), n. [F. cr[ e]dit (cf. It. credito), L. creditum loan, prop. neut. of creditus, p. p. of credere to trust, loan, believe. See {Creed}.] 1. Reliance on the truth of something said or done; belief; faith; trust;… …   The Collaborative International Dictionary of English

  • Letter of credit — Letter Let ter, n. [OE. lettre, F. lettre, OF. letre, fr. L. littera, litera, a letter; pl., an epistle, a writing, literature, fr. linere, litum, to besmear, to spread or rub over; because one of the earliest modes of writing was by graving the… …   The Collaborative International Dictionary of English

  • letter of credit — n. a letter from a bank asking that the holder of the letter be allowed to draw specified sums of money from other banks or agencies, to be charged to the account of the writer of the letter …   English World dictionary

  • letter of credit — n an official letter from a bank allowing a particular person to take money from another bank …   Dictionary of contemporary English

  • Letter of credit — After a contract is concluded between buyer and seller, buyer s bank supplies a letter of credit to seller …   Wikipedia

  • letter of credit — An engagement by a bank or other person made at the request of a customer that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the credit. A credit may be either revocable or irrevocable …   Black's law dictionary

  • letter of credit — documentary credit A letter from one banker to another authorizing the payment of a specified sum to the person named in the letter on certain specified conditions. Commercially, letters of credit are widely used in the international import and… …   Accounting dictionary

  • letter of credit — documentary credit A letter from one banker to another authorizing the payment of a specified sum to the person named in the letter on certain specified conditions (see letter of indication). Commercially, letters of credit are widely used in the …   Big dictionary of business and management

  • letter of credit — noun a document issued by a bank that guarantees the payment of a customer s draft; substitutes the bank s credit for the customer s credit • Hypernyms: ↑document, ↑credit • Hyponyms: ↑commercial letter of credit, ↑traveler s letter of credit,… …   Useful english dictionary

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