Which of the following defines a letter of credit?

A. A contractual agreement between the importer and exporter to exchange international goods on credit.

B. A contractual agreement by the exporter to sell international goods to the importer on credit.

C. A contractual agreement by the importer's bank to pay once the exporter ships the goods.

D. A contractual agreement that provides the necessary documents to the importer's bank as evidence.

A letter of credit is a contractual agreement that provides necessary documents to the importer's bank, facilitating international trade and reducing transaction risks.

Explanation:

A letter of credit is a contractual agreement that provides the necessary documents to the importer's bank as evidence. It assures the exporter that they will be paid once the conditions of the letter of credit are met, typically when the goods are shipped.

This method helps in facilitating international trade without the direct exchange of money, allowing for smoother transactions and reducing the risks involved in cross-border trade.

Letters of credit are widely used in commerce and play a vital role in ensuring trust and security between parties involved in international transactions.

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