letter of exchange

A traveler exchanges a letter of exchange at a currency counter.

Definition

1. Noun:
   • A written negotiable instrument: A "letter of exchange" is a formal document, typically used in international trade, that orders one party (the drawee) to pay a specified sum of money to another party (the payee) on a predetermined date or on demand. It functions as a form of payment or credit.

Usage Examples

• Noun:
  • The exporter sent a letter of exchange to the importer for the shipment of goods. (The document was used to request payment for delivered products.)
  • The bank accepted the letter of exchange and credited the seller's account. (The financial institution processed the negotiable instrument.)

Advanced Usage

• "to draw a letter of exchange": to create and issue such a document.

  • The company drew a letter of exchange to secure payment from its overseas buyer. (The company issued the document to guarantee payment.)

• "to honor a letter of exchange": to accept and pay the document when it is presented.

  • The bank honored the letter of exchange on the due date. (The bank made the payment as ordered.)

Variants and Related Words

• Bill of exchange (n): a synonym for "letter of exchange," used more commonly in modern finance.

  • The trader used a bill of exchange to settle the debt. (A formal payment order.)

• Promissory note (n): a similar instrument where the issuer promises to pay, rather than ordering a third party to pay.

  • Unlike a letter of exchange, a promissory note is a direct promise to pay. (A different type of financial document.)

Synonyms

• Bill of exchange: the standard term for a written order to pay.
• Draft: a common synonym, especially in banking contexts.
• Negotiable instrument: a broader term for transferable financial documents.

Related Idioms

• "take up a letter of exchange": to accept or pay the document.
  • The importer took up the letter of exchange by paying the bank. (The importer fulfilled the payment obligation.)