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.

RELATED TERMS
  1. Foreign Credit Insurance Association ...

    A federal agency that provides insurance for U.S. exporters. ...
  2. Bank Confirmation Letter - BCL

    A letter confirming that a line of credit has been secured from ...
  3. International Banking Act of 1978

    Federal banking legislation that put all domestic bank branches ...
  4. Export-Import Bank Of The United ...

    A federal agency responsible for facilitating international trade ...
  5. Foreign Bank Supervision Enhancement ...

    An act enacted on December 19, 1991 to increase the Federal Reserve's ...
  6. Foreign Branch Bank

    A type of foreign bank that is obligated to follow the regulations ...
Related Articles
  1. Investing

    What's a Correspondent Bank?

    A correspondent bank is a bank that acts on behalf of another bank, usually a foreign bank.
  2. Investing

    Introduction To The Chinese Banking System

    As China steps into a greater role in the global economic system, their banking system continues to evolve.
  3. Insurance

    Insurance Companies Vs. Banks: Separate And Not Equal

    Insurance companies and banks are both financial intermediaries. However, they don't always face the same risks and are regulated by different authorities.
  4. Insights

    What Do the Federal Reserve Banks Do?

    These 12 regional banks are involved with four general tasks: formulate monetary policy, supervise financial institutions, facilitate government policy and provide payment services.
  5. Personal Finance

    Retail Banking Vs. Corporate Banking

    Retail banking is the visible face of banking to the general public. Corporate banking, also known as business banking, refers to the aspect of banking that deals with corporate customers.
  6. Taxes

    Get A Tax Credit For Your Foreign Investments

    The foreign tax credit provides a break on investment income made and taxed in a foreign country.
  7. Investing

    This Central Bank Owns U.S. Equities Worth 20% of GDP

    Discover more about Swiss National Bank's holdings of financial assets, and look into its recent accumulation of foreign equities.
  8. Investing

    Protect Your Foreign Investments From Currency Risk

    Hedging against currency risk can add a level of safety to your offshore investments.
  9. Trading

    Why Having a Strong Currency Is Like Holding a Hot Potato

    Strong currencies can create complicated situations for nations and policymakers, especially when central banks use divergent and robust monetary easing.
RELATED FAQS
  1. When are you legally required to get a letter of credit?

    Learn how exporters or importers who deal in international trade use letters of credit to ensure that transactions are safe, ... Read Answer >>
  2. What is a bank's legal liability when issuing a letter of credit?

    Learn the responsibility of banks that issue letters of credit Letters of credits ensure payment on transactions between ... Read Answer >>
  3. What role does a correspondent bank play in an international transaction?

    Understand what a correspondent bank is and how it operates to facilitate currency exchange and financial transactions between ... Read Answer >>
  4. What's the difference between a bank guarantee and a letter of credit?

    A bank guarantee and a letter of credit are similar in many ways but they're two different things. Letters of credit ensure ... Read Answer >>
Hot Definitions
  1. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
  2. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  3. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
  4. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
  5. Hard Fork

    A hard fork (or sometimes hardfork) is a radical change to the protocol that makes previously invalid blocks/transactions ...
  6. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
Trading Center