A letter of credit:

a. Ensures a company that funds will be available when needed

b. Is analogous to a credit card that companies can draw on as needed

c. Is a representation that a company has a high credit rating

d. Provides a guarantee of payment from the buyer, reducing the credit risk to the seller

Question

Mireya Solomon

Business

13 June, 03:56

A letter of credit:

a. Ensures a company that funds will be available when needed

b. Is analogous to a credit card that companies can draw on as needed

c. Is a representation that a company has a high credit rating

d. Provides a guarantee of payment from the buyer, reducing the credit risk to the seller

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Answers (1)

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Fifi · Answer 1

d. Provides a guarantee of payment from the buyer, reducing the credit risk to the seller

Explanation:

A letter of credit is a document that guarantees a seller of payment from the buyer. It is drafted and issued by a bank assuring the seller of timely and full payment. A letter of credit is applied mostly in international trade where the buyer and seller hardly meet or know each other.

Banks issue a letter a credit against cash or other securities. Should the buyers fail to make payment, a letter of credit assures the seller that the bank will take responsibility for the payment. Banks usually charge a fee for issuing letters of credit.