Banks can control their risk associated with standby letters of credit by:

Question

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Banks can manage the risks associated with standby letters of credit by limiting the amount outstanding, diversifying their portfolio of such letters, and increasing their capital. These strategies help in spreading the risk, ensuring that the bank is not overly exposed to a single client or sector, and maintaining a strong financial base to absorb potential losses.

Banks Can Control Their Risk Associated with Standby Letters of Credit