A letter of credit is a separate contract entered into between a commercial bank (issuing bank), and an applicant, the bank’s accountee, in which the bank promises a third party, the beneficiary, up to a certain sum of money in a stated currency upon the condition that the beneficiary perform a certain act, such as presenting a draft drawn in conformance with the L/C within a certain period of time; and, in the case of a documentary letter of credit, present specified documents, usually shipping documents, which conform to the L/C terms.
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