A letter of credit has these two drawbacks.
A letter of credit is frequently used in international trade to guarantee that a payment will be made to the seller promptly and in full, as guaranteed by a bank or other financial institution.
In addition to requesting security from the buyer, the bank will charge a fee after providing a letter of credit, which is ordinarily a percentage of the letter of credit. Revolving, commercial, and confirmed letters of credit are a few examples of the different kinds of letters of credit.
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