The letter of credit system effectively transfers the issue of trust to the bank.

Question

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The letter of credit system operates on the premise that the bank acts as an intermediary and assumes the role of a trusted third party. The bank provides a guarantee of payment to the seller, and the risk of non-payment is effectively transferred to the bank. As a result, the letter of credit system shifts the issue of trust from the buyer and seller to the bank, making it a reliable and secure method of payment in international trade.

The Letter of Credit System Effectively Transfers the Issue of Trust