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What is Letter of Credit?

Letter of Credit A formal document issued by a bank guaranteeing payment to a beneficiary on behalf of the applicant, provided that specific terms and conditions are met, widely used in international trade.

Source: CFA Institute, IFRS Foundation, FASB (GAAP), Basel III Framework

How is “Letter of Credit” Used in Practice?

Exporters require a letter of credit to mitigate payment risk in international transactions, ensuring payment from the buyer’s bank upon shipment compliance.

Certification Exam Relevance

CFAACCAFRM

Who Needs to Know This Term?

  • Financial Analysts
  • Bankers
  • Traders

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Frequently Asked Questions

What is Letter of Credit?

A formal document issued by a bank guaranteeing payment to a beneficiary on behalf of the applicant, provided that specific terms and conditions are met, widely used in international trade.

Where can I learn this term for free?

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