Letter Of Credit, Standby Letter Of Credit, Standby
Similar to a commercial L/C in structure, the use of a standby is very different. While a commercial L/C is the primary payment mechanism for a commercial trade transaction, the standby L/C is only used (drawn upon) in the event of a default by the bank's customer on some contractual arrangement between him and the beneficiary of the L/C outside the L/C transaction itself. Standby L/C's are often used in lieu of bid or performance bonds or as payment guarantees.
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