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Simple English definitions for legal terms
letter security
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A quick definition of letter security:
Letter security is a type of security that is restricted and provides assurance to a creditor that they will be repaid any money or credit extended to a debtor. It can also refer to an instrument that shows ownership rights in a company or other rights. Securities are different from other commodities because they represent rights in something else and their value depends on the financial condition of the promisor or the profitability of the corporation.
A more thorough explanation:
Letter security is a type of security that is restricted, meaning it has limitations on who can access it. It is a form of collateral that is given to guarantee the fulfillment of an obligation. This can include a promise to repay a loan with interest or to fulfill a contractual obligation.
Examples of letter securities include:
- Bonds
- Debentures
- Certificates of deposit
- Guarantees
These examples illustrate the definition of letter security because they are all forms of collateral that are used to guarantee the fulfillment of an obligation. For example, a bond is a type of letter security that is issued by a company or government to raise money. The bondholder is promised a fixed rate of interest and the return of their principal investment at a future date. If the company or government fails to fulfill this obligation, the bondholder can take legal action to recover their investment.