Documentary letters of credit are contingent guarantees sold by an FI to underwrite a trade or commercial performance of the buyer of the guarantee

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Documentary letters of credit are commonly used in trade finance transactions to provide assurance to the seller that they will be paid for goods or services provided to a buyer. The FI issues a contingent guarantee that the buyer will fulfill their obligations in the transaction, and if the buyer fails to do so, the FI will pay the seller on their behalf.

Documentary Letters of Credit Are Contingent Guarantees Sold by an FI