Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited.

What's a Letter of Credit? Are funds held in my bank for the amount in question?
A letter of credit is commonly used by importers who want to ensure that their product is shipped before paying the exporter. The exporter has a guarantee that the payment for the goods will be received once the shipment has been made.  It is used to resolve a Game Theory type situation. For example, you are buying a car from China for $40,000 USD. The exporter of the car asks for the money before he will ship the car, but if you give him the money, then he has no incentive (aside from legal pressures) to ship the car. Instead you sign a letter of credit for the transaction, which basically sends your payment to the exporters bank, but puts a hold on it until the exporter proves that he has shipped the car and proved that he has insured the shipment against damages.