Credit Letter (CL): A extensively utilised trade finance instrument, a letter of credit is a bank guarantee that guarantees payment to the seller (exporter) if the terms and conditions are met.
This form of insurance safeguards businesses against the risk of nonpayment by their customers. It covers commercial and political hazards that could result in payment default.
This entails the use of financial intermediaries, typically banks, to facilitate the exchange of documents and funds between the buyer and the seller. It provides both parties with a level of security.
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Tags: financial instruments, international trade,
