Synthetic Letter Of Credit

AAA

DEFINITION of 'Synthetic Letter Of Credit'

A letter of credit that has been pre-funded by the bank on the closing date, instead of when the funds are drawn as needed. The funds accessible through a synthetic letter of credit are typically held in a credit-linked deposit account until required.

INVESTOPEDIA EXPLAINS 'Synthetic Letter Of Credit'

Since the funds borrowed through a synthetic letter of credit are given immediately, they are a more liquid source of funds to the borrower than a standard letter of credit. The proceeds are therefore considered more secure, as there is no counterparty risk which could result in the funds becoming unavailable.

RELATED TERMS
  1. Transferable Letter Of Credit

    A letter of credit that permits the beneficiary of the letter ...
  2. Bank Letter Of Credit Policy

    An insurance policy that allows U.S. banks to confirm letters ...
  3. Back-To-Back Letters Of Credit

    Two letters of credit (LCs) used together to help a seller finance ...
  4. Irrevocable Letter Of Credit - ...

    Correspondence issued by a bank guaranteeing payment for goods ...
  5. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a ...
  6. Standby Letter of Credit - SLOC

    A guarantee of payment issued by a bank on behalf of a client ...
Related Articles
  1. Handcuffs And Smoking Guns: The Criminal ...
    Options & Futures

    Handcuffs And Smoking Guns: The Criminal ...

  2. Impairment Charges: The Good, The Bad ...
    Fundamental Analysis

    Impairment Charges: The Good, The Bad ...

  3. The Impact Of An Inverted Yield Curve
    Bonds & Fixed Income

    The Impact Of An Inverted Yield Curve

  4. Different Needs, Different Loans
    Options & Futures

    Different Needs, Different Loans

comments powered by Disqus
Hot Definitions
  1. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  2. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  5. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  6. Budget Deficit

    A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer ...
Trading Center