What is a letter of credit?
A) It is an instrument issued by a bank at the request of a buyer in which the bank promises to pay a specified amount of money on presentation of documents stipulated in the letter.
B) It is a letter which states that after the seller ships the goods, the shipping documents and the draft demanding payment should be presented to the importer through banks acting as the seller's agent.
C) It is a set of instructions given to shipping companies who have a line of vessels.
D) It is an instrument of currency issued by a foreign government to the exporter.

Question

Quizplus · Accepted Answer

A letter of credit is an instrument issued by a bank at the request of a buyer in which the bank promises to pay a specified amount of money on presentation of documents stipulated in the letter. This means that the seller can be confident that they will receive payment once they have provided the required documents, which usually include proof of shipment and delivery. The letter of credit serves as a form of security for both the buyer and the seller in international trade transactions.

What Is a Letter of Credit