What a is Letter of Credit (LC)?  

It is any arrangement, however named or described, whereby a bank (issuing  bank), acting at the request and on the instructions of a customer (applicant) or on its own behalf, binds itself to:

1. Pay to the order of, or accept and pay drafts drawn by a third party (Beneficiary), or
2. Authorize another bank to pay or to accept and pay such drafts, or  
3. Authorizes  another bank to negotiate, against stipulated  document(s),    

Provided, the terms and conditions of the credit are complied with (Art. 2, Uniform Customs & Practice   for Documentary Credits.)  

Note: They are in effect absolute undertakings to pay the money advanced or for the amount for which the credit is given on the faith of the instrument.