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For an issuer, a standby credit letter is a(n) A) securitized strip B) loan strip C)...

For an issuer, a standby credit letter is a(n)
A) securitized strip
B) loan strip
C) contingent obligation
D) indirect loan
E) none of the above
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Answer #1

Option C

Bank issues a standby credit letter to ensure a third party that if its client fails to make a payment then it would make it so it is an obligation to payoff the client's debts in a contingent situation. Its not a loan since bank does not pay the amount to client in every situation. Securitisation strip and loan strip are forms of repacking debts and other funds therefore they are not standby credit letter.

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