Define Letters of Credit?
Ans. The letter of credit is also known as the credit letter. This letter is essentially a form of guarantee provided by the bank on your behalf to a seller from whom you have purchased something that they will get their payment on time and fro the appropriate amount. In a situation where the buyer is unable to pay the seller, the bank would assume responsibility and pay the seller in full on behalf of the buyer. This letter is an official document sent by the bank to the seller.
Or
The letter of credit is a promise the bank makes, stating that the buyer would pay the seller in full by the required date and the appropriate, failing which the bank would be accountable & would have to pay.
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