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Simple English definitions for legal terms
traveler's letter of credit
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A quick definition of traveler's letter of credit:
A traveler's letter of credit is a document that a bank gives to someone who is traveling to another country. It says that the bank will give the person money in the local currency when they need it. The person can use this document to get money from a bank in the other country. They just need to show the document and their ID. It's like having a special kind of money that works in a different country.A more thorough explanation:
A traveler's letter of credit is a type of letter of credit that is used by a person traveling abroad. It is addressed to a correspondent bank, from which one can draw credit by identifying oneself as the person in whose favor the credit is drawn. The issuing bank authorizes payment of funds to the holder in the local currency by a local bank. The holder signs a check on the issuing bank, and the local bank forwards it to the issuing bank for its credit.
For example, if John is traveling to Japan and needs to access funds in the local currency, he can obtain a traveler's letter of credit from his bank. He can then go to a local bank in Japan, identify himself as the person in whose favor the credit is drawn, and sign a check on the issuing bank. The local bank will then forward the check to John's bank for payment.
Traveler's letters of credit are governed by Article 5 of the UCC and are a type of letter of credit. They are similar to other types of letters of credit, such as commercial letters of credit and standby letters of credit, but are specifically designed for use by travelers.