Final answer:
When a customer cannot pay a commercial letter of credit, a bank can protect itself by requiring a cosigner or collateral, and it may take legal action to recover funds through the sale of the customer's assets.
Step-by-step explanation:
When a bank issues a commercial letter of credit on behalf of its customer and the customer cannot pay as agreed, there are several steps the bank can take to protect itself
One common approach is to require a cosigner on the letter of credit, which is another individual or firm that legally pledges to repay the debt if the original customer fails to do so. Another protective step is to demand collateral, which may include property or equipment that the bank can seize and sell to recover the unpaid funds. In situations where the customer defaults on the payment, the bank can also take legal action, potentially taking the customer to court and requiring the sale of their assets to make the loan payments.