In economic terms, the letters of credit (LCs) and stand-by letters of credit (SLCs) sold by an FI
A)are contractual commitments to make a loan up to a stated amount at a given interest rate in the future.
B)are insurance against the frequency or severity of some particular future occurrence.
C)are nonstandard contracts between two parties to deliver and pay for an asset in the future.
D)are standardized contract guaranteed by organized exchanges to deliver and pay for an asset in the future.
E)None of the options.

Question

Quizplus · Accepted Answer

Letters of credit (LCs) and stand-by letters of credit (SLCs) are financial instruments used to provide insurance against the frequency or severity of a particular future occurrence, such as default by the borrower. They are not contractual commitments to make a loan, nor are they contracts for the delivery and payment of an asset. They are not standardized contracts guaranteed by organized exchanges.

In Economic Terms, the Letters of Credit (LCs) and Stand-By