letter of credit

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Letter of credit (LOC)

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.

Letter of Credit

A statement issued by a bank to the buyer of a good stating that the seller will receive payment on time and in the correct amount. If the buyer fails to make payment, the bank will do so on his/her behalf. The buyer presents a letter of credit to the seller, which eliminates the risk that the seller will not be paid. Letters of credit have become very common in international commerce, as distance and other factors make it difficult for sellers to establish the creditworthiness of every buyer.

letter of credit

A promise of payment in the event that certain requirements are met. A letter of credit essentially substitutes the credit of a third party (usually a large bank) for that of a borrower. In the case of municipal bonds, an LOC generally permits a trustee to draw six months' interest and sufficient funds to retire outstanding bonds at par in the event of default.

letter of credit

a document used to effect payment for internationally traded goods, usually as part of a contract for the sale of goods which ensures that the supplier receives prompt and guaranteed payment while the purchaser obtains a short-term CREDIT line. In brief, under this facility, a purchaser in country A of goods supplied by a firm in country B can arrange a letter of credit from his bank (the credit issuing bank) authorizing it to make payment to the supplier either through a branch of the bank in country B or, more usually, through a bank (the negotiating bank) holding the supplier's account. Under a contract of sale of goods this will be done on the presentation to the negotiating bank of documents stipulated in the letter of credit, such as the bill of lading, insurance policy, certificate of origin, etc. In the case of certain letters of credit relating to particular transactions and customers located in heavily indebted countries, a secondary market has developed to offset political as well as commercial risk. See EXPORTING.

letter of credit (LOC)

(Pronounce each letter of the abbreviation;it is not pronounced as a word.) An instrument issued by a bank or other financial institution (issuer) agreeing that it will pay money to another (beneficiary), on behalf of the bank's customer (account party), upon the happening of certain named events.There is usually an issuance fee of 1 to 2 percent of the face amount of the LOC.Modern banking regulations require the same underwriting as for a commercial loan.The LOC will set out the exact prerequisites to be met before the bank will issue payment. These usually include a particular time and place to present the original letter of credit and the exact documents that must accompany the letter.Some states still follow the old “strict compliance”rule holding that any deviation from the instructions, no matter how minor, will justify the bank in refusing to pay. Others follow a “substantial compliance” rule, so that minor typographical or syntax errors in the presenting documents will not justify nonpayment. See also the two types of letters of credit: documentary letter of credit and standby letter of credit.

References in periodicals archive ?
The book begins with a useful explanation of why documentary credits are used in international business.
However, since documentary credits involve relatively higher banking fees and more complex documentary procedures, this option is not always appropriate.
Documentary Credits: Law and Practice is an authoritative text dealing with the law relating to documentary credits in both an English and international context.
O'Brien said, "The 2013 ISBP is an essential tool for day-to-day documentary credit operations, not only of importance to bankers but also to trading companies.
The law provides them with an enormous added safety net with the backing of documentary credit guaranteeing payment, hence avoiding risks and defaults.
Summary: Corporate executives, customers of the Banque ExtE[umlaut]rieure d'AlgE[umlaut]rie (External Bank of Algeria, BEA) on Monday expressed fears about the payment of imports through documentary credit (DC).
This manual covers each step of import operations from documentary credit opening / amendment, WEB documentary credit opening / amendment, documents scrutiny, lodgments, issuance of shipping guarantee/delivery order, retirement, acceptance, issuance of trust receipt, reversal of acceptance, dispatch, correspondence, reporting and control of all import related operations in accordance to the banks policies.
Services include account and deposit services, loans and advances, bill acceptance and discounting, dealing in government and financial bonds and non-equity foreign currency-denominated securities, documentary credit and bank guarantees, remittance and settlement, foreign exchange, debit cards and credit cards, and overseas investment services for local residents and enterprises.
Therefore they have difficulty establishing documentary credit facilities with international banks.
Arab Petroleum Investments Corporation (APICORP), which is the multilateral development bank owned by the 10-member nations of the Organization of Arab Petroleum Exporting Countries (OAPEC), has signed a documentary credit insurance policy (DCIP) with the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) that is a member of the Islamic Development Bank (IDB) Group.
Sberbank CIB s key business areas are corporate loans (including trade finance), documentary credit operations, investment banking services, trading in securities, proprietary investments.
Some of these programmes include Credit Card Management (CCM) - Certification with Hong Kong Institute of Bankers (HKIB); Certified Documentary Credit Specialist (CDCS) - Certification with the British Institute of Financial Services; ACCA Certification with the Association of Chartered Certified Accountants and others.