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.

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  1. When is it necessary to get a letter of credit?

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  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. When do I need a letter of credit?

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  4. How does investment banking differ from commercial banking?

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