The Letter of Credit Reduces the Importer's Ability to Borrow

question 124

True/False

The letter of credit reduces the importer's ability to borrow funds for other purposes.

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Definitions:

Commercial Paper

An unsecured, short-term debt instrument issued by corporations, typically for financing accounts receivable and inventories.

Certificates of Deposit

A savings certificate with a fixed maturity date and specified fixed interest rate, often issued by banks.

Net Float

The difference between check amounts written and deposited in the clearing process, affecting the available balance in the account.

Disbursement Float

The time lag between when a payment is made by writing a check and when the funds are actually withdrawn from the payer's account.