Back-To-Back Letters Of Credit

  

Drastic times call for drastic measures. You saw an ad selling two DeLoreans on Craigslist that you know your friend's high-end car rental company, Viva los DeLoreans, located in Chile, would buy in an instant. What should you do?

Be the middleman. Broker the deal.

You arrange a loan here in the U.S. to buy these two DeLoreans with the seller getting the dough. Your friend in Chile goes to his bank and gets a loan to buy the two cars from you. That process is obtaining back-to-back letters of credit with the intent of easing the level of risk for any one party. And if done right, you, the middleman, get a bit of dinero in the deal to make it worthwhile.

Related or Semi-related Video

Finance: What is a Credit Limit?39 Views

00:00

Finance, a la shmoop. What is a credit limit? Alright people well simply put the

00:08

maximum amount you get to charge or use on a loan or credit account, that's a [Credit limit definition written on a 100 dollar bill]

00:14

credit limit. So yeah it's that thing that keeps toddler Joey from ordering

00:17

two hundred thousand dollars worth of Snickers bars. [Toddler looking at the snickers bar]

00:20

If you accidentally you know leave out your Amex. (Illustrative example time) If you have a ten thousand

00:27

dollar line of credit or credit card you can't spend $20,000 on a trip to Vegas,

00:32

sorry. You might be able to go on a smaller trip to Atlantic City but once [Picture of Atlantic City]

00:36

you hit that 10 grand well the party's over until you pay some of that money [$10,000 flashing in red]

00:40

back, and by the way taking that smaller trip and then putting everything on red [Chips landing on a roulette table]

00:43

22 in hopes of funding your next trip to Vegas? Probably not the soundest

00:47

financial planning... sorry, let's keep it real. [Guy putting on a serious face]

Up Next

Finance: What is a Line of Credit?
133 Views

What is a line of credit? A line of credit is kind of like a loan. A bank gives a borrower a line of credit, which basically says they can borrow â...

Finance: What are credit ratings, and how are they interpreted?
59 Views

What are credit ratings and how are they interpreted? Credit ratings describe a borrower’s likelihood to pay back their debts; it’s a look at h...

Finance: What is an Accredited Investor?
9 Views

What is an Accredited Investor? An accredited investor, according to the SEC, is an individual with income of $200,000 or more and $300,000 and abo...

Finance: What does a stock broker do?
19 Views

What does a stockbroker do? Stockbrokers use money from investors to invest in the stock market. Their first job is to go out and find these client...

Find other enlightening terms in Shmoop Finance Genius Bar(f)