[L020]

letter of credit

1) A commitment made by an issuing bank or other party at the request of a customer to honor drafts or other demands for payment presented to the bank under the terms of the credit and, if the commitment is a documentary draft, upon presentation of the required documents of title.

2) In reinsurance, a commitment made by a bank to a reinsured which can be drawn upon to cover any of the reinsurer's liabilities to the reinsured under their reinsurance agreement.

Copyright: The Rough Notes Company, Inc., 1998, All Rights Reserved. 3040100