Transferable Letter Of Credit

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DEFINITION of 'Transferable Letter Of Credit'

A letter of credit that permits the beneficiary of the letter to make some or all of the credit available to another party, thereby creating a secondary beneficiary. The party that initially accepts the transferable letter of credit from the bank is referred to as the first beneficiary. The bank issuing the letter of credit must approve the transfer.

INVESTOPEDIA EXPLAINS 'Transferable Letter Of Credit'

The transfer of credit must be clearly outlined in the documentation of the letter. However, the letter of credit must state expressly that the credit is transferable. Otherwise, no credit can be transferred regardless of any other factors.

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RELATED FAQS
  1. 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 Full Answer >>
  2. Why do banks used the Five Cs of Credit?

    Banks use rigorous policies and analyses when determining if and how much money to lend to clients. The methods used by banks ... Read Full Answer >>
  3. What is the difference between a term and open repurchase agreement?

    The major difference between a term and an open repurchase agreement (repo) is in the term or tenor. In a term repo, the ... Read Full Answer >>
  4. What is the difference between a repurchase agreement and reverse repurchase agreement?

    A repurchase agreement, or repo, is a form of collateralized lending, while a reverse repurchase agreement, or reverse repo, ... Read Full Answer >>
  5. How is a bank guarantee different from a traditional loan?

    A traditional bank loan involves a credit application and a conditional transfer of the bank's funds to the borrower. Bank ... Read Full Answer >>
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    Both individual and business borrowers are asked to provide information related to their credit history, income and debt ... Read Full Answer >>
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