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What is a Letter of Credit?

A letter of credit is a provided by a bank or financial institution on behalf of a borrower or buyer, to ensure the seller that payments will be made on time and in full.

In the event that the buyer is unable to make payment on the purchase, the bank will have to step-in to cover the full or remaining amount of the purchase. Letters of credit are often used in international transactions to guarantee that payment will be received.

Keywords: risk, letter of credit, credit, bank guarantee,