a(n) has two drawbacks: the fee paid by the importer to the bank and since this is a financial liability, it may affect the importer's ability to borrow for other transactions.

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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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