Bank Letter Of Credit Policy


DEFINITION of 'Bank Letter Of Credit Policy'

An insurance policy that allows U.S. banks to confirm letters of credit issued by foreign financial institutions, facilitating the purchase of domestic exports. The policy was established by the Export-Import Bank of the United States and insures the domestic bank against the possible default of the foreign institution.

BREAKING DOWN 'Bank Letter Of Credit Policy'

Remember, banks take on additional risk when dealing in overseas transactions. Political risk, such as warfare or government intervention, can wipe out a borrower's ability to reimburse the bank. Furthermore, in smaller, less stable nations, foreign exchange risk can be very large. The policy protects banks against any inconvertibility arising from foreign exchange issues.

  1. Synthetic Letter Of Credit

    A letter of credit that has been pre-funded by the bank on the ...
  2. Currency Convertibility

    The ease with which a country's currency can be converted into ...
  3. Export-Import Bank Of The United ...

    A federal agency responsible for facilitating international trade ...
  4. Default Risk

    The event in which companies or individuals will be unable to ...
  5. Political Risk

    The risk that an investment's returns could suffer as a result ...
  6. Foreign Exchange Risk

    1. The risk of an investment's value changing due to changes ...
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