Which of the following is the best definition of a letter of credit?

Multiple Choice

• A promise by the firm, included in the debt contract, to perform certain acts.

• A written statement by a bank that money will be paid, provided conditions specified in the letter are met.

• Short term financing that consists of short-term notes issued by large and highly rated firms.

• Short-term financing in which the factor purchases all of a firms receivables and forwards the proceeds to the seller as soon as they are collected.

• A secured short-term loan that involves either the assignment or factoring of receivables.