back-to-back letter of credit

(banking) A new letter of credit opened in favor of another beneficiary on the basis of an already existing, nontransferable letter of credit. For example, a British merchant agrees to buy cotton in Egypt for sale to a Belgian shirtmaker. The Belgian establishes a nontransferable letter of credit for payment to the British merchant who then uses the strength of the letter of credit as a security with his bank for opening a letter of credit to finance payment to the Egyptian. See letter of credit.

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