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letter of credit cost calculator

SBLCs, unlike other types of LCs, are a type of contingency plan. What are index funds and how do they work? Under Special Buyer Credit Limit applications and Short-Term Single Buyer policies (ESS, FB, FV) requirement of a commercial bank obligor or guarantor will be evaluated on a case-by-case basis. These returns cover a period from 1986-2011 and were examined and attested by Baker Tilly, an independent accounting firm. Discretionary Credit Limits are withdrawn. The issuing bank in international transactions typically requests this arrangement. The authors and reviewers work in the sales, marketing, legal, and finance departments. The Commercial Letter of Credit fulfills payment per a contract agreement, typically used for international or domestic trade . There are multiple banks in action in a letter of credit transaction, and each bank demands a fee for its each action. Yes, SBLC is legal and fully operational in India when issued by banks certified by the Reserve Bank of India. Write CSS OR LESS and hit save. ", International Chamber of Commerce. Copyright 2023 Zacks Investment Research. Now that you know exactly how much your purchases on credit are truly costing with interest rates and planned monthly payments factored in, you have a clearer sense of how you personally use credit. 1-800-565-EXIM. An SBLC is used as a safety mechanism in a trade to ensure that the agreement is honored by both parties. Transaction structure and additional information requirements will be determined on a case-by-case basis. It functions as a strictly binding guarantee. Letter of Credit Examples. Since 2009, I am a professional and independent letter of credit consultant from Izmir, Turkey. If you need to obtain a letter of credit for a business transaction, your current bank may be the best place to begin your search. .css-rkg5nq{padding:0;margin:0;}Last editedJan 2022 2 min read. Share sensitive information only on official, secure websites. A HELOC has a variable interest rate that is tied to a benchmark interest rate, such asThe Wall Street Journal Prime Rate. There are many different letters of credit including one called a revolving letter of credit. A locked padlock ) or https:// means youve safely connected to the .gov website. For more information, please visit EXIM's Website at www.exim.gov or call Letter of credit amount is 100.000 Euro and the time between the issuance of the letter of credit and the payment to the exporter is 3 months. Makes it easier to define the specifics of when and how transactions are to be completed between involved parties. 514-394-6400 (National Bank's International team) Open from 8:30 a.m. to 5 p.m. Letters of credit (LC) provide financial guarantees that reduce risk and enable financial transactions between often distant parties. Commitment Fee Percentage means, as of any date, the applicable rate per annum under the caption Commitment Fee Percentage as determined by reference to the Public Debt Rating in effect on such date as set forth below: Ratings Level Public Debt Rating S&P/Xxxxxx Commitment Fee Percentage Level 1 At least A+ by S&P/A1 by Xxxxxx 0.030% Level 2 A by S&P/A2 by Xxxxxx 0.040% Level 3 A- by S&P/A3 by Xxxxxx 0.050% Xxxxx 0 Xxxxx xxxx X- xx X&X/X0 by Xxxxxx or unrated 0.060%. The line of credit is based on a percentage of the value of the home. A line of credit calculator can show you what payments might look like over time, particularly as your homes value changes. Letters of credit are either commercial or standby. The issuing bank commits to pay the beneficiary or any bank nominated by them. A synthetic letter of credit is a negotiable instrument that guarantees that a specified payment will be made, and which is pre-funded by the bank. Any bank or NBFC can issue an SBLC once they are confident about the creditworthiness of the applicant . Your home equity is the difference between your homes value and how much you owe on any mortgages and home equity loans secured by the property. This facilitates transactions between parties that are often not well-known to one another and in different countries. LCs, unless they are specifically revocable in the original documents, cannot be canceled once issued. We are not responsible for the content or availability of linked sites. Each party's bank relies on a shared confidence in the banking system, their familiarity with their own customer -- and in some instances other guarantees -- to carry out the transaction. This is a nonbinding fee calculator provided for your convenience. Among the various forms of letters of credit are a revolving letter of credit, a commercial letter of credit, and a confirmed letter of credit. In addition, coverage under the WCGP may be available for a transaction that is supported by an irrevocable Letter of Credit issued by a bank, and/or due from a Buyer, located in a country where EXIM is open without restrictions for short-term transactions. A line of credit calculator can help you determine how much you might qualify for if you were to obtain a HELOC. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. applications in the private sector. Since 1986 it has nearly tripled the S&P 500 with an average gain of +26% per year. Who pays the fees? This kind of letter allows a customer to make any number of draws within a certain limit during a specific time period. Types of Letters of. A Letter of Credit is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. Yes, an SBLC can be discounted and is often considered a great investment instrument. Letter of Credit Fee Calculation Amount in effect at any time means the maximum amount available to be drawn at such time under the Letter of Credit, the determination of such maximum amount to assume compliance with all conditions for drawing and no reduction for (i) any amount drawn by any B Drawing referred to in the Letter of Credit (unless Unlike a home equity loan, which is paid out in a lump sum, a line of credit revolves so as you pay off the line of credit principal, you can use the HELOC again. This benefit is especially valuable when a client is located in a potentially unstable economic environment. If youre interested in finding out more about letters of credit and their associated costs, then get in touch with our financial experts. Of course, the final line of credit received will take into account any outstanding mortgages there might be. The Facility Fee Percentage shall be as follows: Range of Borrowers Corporate Credit Rating S&P/Xxxxxx/Fitch Ratings Percentage of Maximum Revolving Credit Commitments 3.00:1.00 0.75% 1.30% <3.00:1.00 >2.50:1.00 0.75% 1.20% <2.50:1.00 0.50% 1.10% No change in the Applicable Revolving Commitment Fee Percentage shall be effective until three (3) Business Days after the date on which the Administrative Agent has received the applicable financial statements and a Compliance Certificate pursuant to Section 5.01(c) calculating the Leverage Ratio. Information such as the sellers name and address, company details, the time period for which SBLC is to be taken as well as shipping documents, etc., are submitted to the bank. If you are looking to improve your credit management skills, checkout ACCCs educational creditmaterialson everything from understanding credit reports to how to write a credit report dispute letter and a list of the 20 steps to financial health. A freight forwarder may be used to assist in this process. In a letter of credit, the issuing bank affirms that a purchaser (in this case, a . If you're wondering "What's the best way to consolidate my debt? Letter of credit is a secure payment method comparing to other payment options in international trade. .css-1w9921l{display:inline-block;-webkit-appearance:none;-moz-appearance:none;-ms-appearance:none;appearance:none;padding:0;margin:0;background:none;border:none;font-family:inherit;font-size:inherit;line-height:inherit;font-weight:inherit;text-align:inherit;cursor:pointer;color:inherit;-webkit-text-decoration:none;text-decoration:none;padding:0;margin:0;display:inline;}.css-1w9921l.css-1w9921l:disabled{-webkit-filter:saturate(20%) opacity(0.6);filter:saturate(20%) opacity(0.6);cursor:not-allowed;}.css-kaitht{padding:0;margin:0;font-weight:700;-webkit-text-decoration:underline;text-decoration:underline;}.css-1x925kf{padding:0;margin:0;-webkit-text-decoration:underline;text-decoration:underline;}Managing cash flow is a key consideration for all SMEs. Some lenders allow you to convert an adjustable-rate HELOC into a fixed-rate HELOC. #2. It cannot be revoked. This site contains PDF documents. Letter of Credit Fee Rate means, at any time, the percentage rate per annum applicable to Letter of Credit Fees at such time as set forth in the Pricing Schedule. Establishing a letter of credit may be tedious or time-consuming for all parties involved. Privacy Policy and acknowledge that your have read, understood and consented to all terms and conditions therein. Should you accept an early retirement offer? If the service provider fails to complete the project within a stipulated time frame, the bank steps in and reimburses the client. The line of credit is based on a percentage of the value of your home as well as any outstanding mortgages. I havea bachelor's degree in business administration and master's degree in international trade and finance; awarded with CDCS (Certified Documentary Credit Specialist) two times between (2010-2013) and (2013-2016). A buyer will typically pay anywhere between 0.75% and 1.5% of the transactions value, depending on the locations of the issuing banks. Baa1 by Xxxxxx and BBB- by S&P or Fitch), the Facility Fee Percentage shall be the rate per annum that would be applicable if the median of the applicable Credit Ratings were used. in excess of one (1) year require the Government of Aruba as the borrower. If you are receiving unsolicited phone calls from an entity pretending to be ACCC (a trusted non-profit credit counseling agency), please be assured that ACCCs policy is NEVER to contact you unless youve explicitly requested for us to call you. Consider an exporter in an unstable economic climate, where credit may be more difficult to obtain. Contact EXIM for more detailed information on specific markets. Exceptions may be made by EXIM for private sector transactions that are insured for political only risk or comprehensive (political and commercial) risk. Unused Commitment Fee Rate has the meaning set forth in the Fee Letter. However, experts call it a myth and say that there can be no SBLC without any upfront payment since the risk is too high. Discretionary Credit Limits under Short The more the home is worth, the larger the line of credit. The easiest way to understand how LOCs work is to see an example, and this tutorial describes the process step-by-step. There are several different types of letter of credit, each designed to prevent missed payments in different transactional contexts. A direct pay standby is irrevocable. Under the Short-Term Multi-Buyer Insurance Program, a commercial bank obligor or guarantor is not required for transactions qualified under Discretionary Credit Limit Authority, in accordance with policy requirements. A letter of credit, also known as a credit letter, is a document from a bank or other financial institution guaranteeing that a specific payment will be made in a business transaction. Typically, this will be a small percentage of the amount you're guaranteeingsay, 2%and may also include closing fees, depending on the bank. How Much Does It Cost to Open a Letter of Credit? A transferable letter of credit is one that grants a primary beneficiary to transfer their credit due to a secondary beneficiary. Some fees are borne by sellers, while others are assumed by buyers. A home equity line of credit,or HELOC, is a type of home equity loan that works like a credit card. However, if this deal is protected by a performance SBLC, the issuing bank will pay entire project fees to the IT company and will charge penalties to the contractor. A standby LC is a secondary payment mechanism, used only when the primary payment mechanism fails. What is SBLC used for? Youll access the line of credit using specially issued checks or a card that looks like a credit card. All Rights Reserved. Lack of trust and fear of payment default is one of the key reasons why some international trade deals don't take off. A letter of credit (LC) is the most commonly sought document for international trade transactions, especially when the buyer and the seller are unfamiliar with one another, are separated by distance, and follow their respective country's laws and trading customs. Once the buyer pays the seller for the goods or the services, the bank terminates the SBLC and doesnt charge him beyond that point. Select the country where the buyer is located. The importers bank releases payment to the exporters bank. The Exporters bank checks the documents for compliance with the Letter of Credit terms and conditions. *** The Master Variable Balance LOC revision fee will be waived if the original term of the Master Variable Balance LOC is 1 year. Where the CLS indicates support is not available, EXIM can still consider financing arrangements that eliminate or externalize country risks. These include bank-to-bank reimbursement fees, as well as charges for postage and courier services. A .gov website belongs to an official government organization in the United States. If at any time the Borrower shall have only one (1) Credit Rating, for purposes of this definition, the Facility Fee Percentage shall be deemed to be the Facility Fee Percentage as though the Borrower has no Credit Rating. Applicable Facility Fee Percentage means, as at any date of determination, the rate per annum then applicable in the determination of the amount payable under Section 2.14(C)(i) hereof determined in accordance with the provisions of Section 2.14(D)(ii) hereof. Public sector risk cover is available under the short-term multi-buyer and short-term single buyer insurance programs. A line of credit calculator can help you determine how much you might qualify for if you were to obtain a HELOC. Insurance SBLC provides support to the beneficiary in case the applicant has committed for insurance or reinsurance but fails to do so. They are recommended for use in higher-risk situations, when the importers credit is unacceptable or not available, when dealing with a new or less-established trade relationship or when extended payment terms are requested. Types of Letters of Credit Letters of Credit fall into one of two categories. You can apply for a letter of credit from your bank. Citibank offers letters of credit for buyers in Latin America, Africa, Eastern Europe, Asia, and the Middle East who may have difficulty obtaining international credit on their own. We use cookies to give you the best possible experience on our website. Any document errors and discrepancies must be amended and resubmitted. The bank then starts looking into the creditworthiness of the applicant and decides whether or not the person should be credited with the SBLC. In a typical standby LC transaction, the purchaser of the LC obtains the LC from a bank, which issues the standby LC to the beneficiary company, guaranteeing that in the event the investor fails to make one or more payments according to the terms of a contract, the issuing bank will make the payment to the company on the investor's behalf. A buyer must prove to the bank that they have enough assets or a sufficient line of credit to pay before the bank will guarantee the payment to the seller. How to Deal with High Banking Commissions under Letters of Credit. If the buyer fails to make payment to the seller, a letter of credit provides a legal obligation to make payment as long as the seller has met all the conditions laid out in the letter. The change in the Facility Fee Percentage, if any, shall be effective immediately as of the date on which any of the rating agencies announces a change in the Borrowers Credit Rating or the date on which the Borrower has no Credit Rating, whichever is applicable. By continuing to browse this site, you give consent for cookies to be used in accordance The Commercial Letter of Credit fulfills payment per a contract agreement, typically used for international or domestic trade. Fees for both kinds of LCs vary, depending on perceived risk, demand, length of LC contract to expiration, whether or not the LC is revocable and many other factors. The latter helps you pay off the loan faster, which can save you on interest, especially in a rising-rate environment. #11b. Extension (for each period of 30 days) % with a minimum of NAf 30.00 + OB. If he defaults, the bank pays the beneficiary, assumes title and liquidates the account. #13. Ask about: International Trade Administration There are a number of administrative processes that go into verifying a letter of credit, and the fees go towards covering these. conditions in this market, EXIM is currently not processing .css-kly6de{-webkit-flex-basis:100%;-ms-flex-preferred-size:100%;flex-basis:100%;display:block;padding-right:0px;padding-bottom:16px;}.css-kly6de+.css-kly6de{display:none;}@media (min-width: 768px){.css-kly6de{padding-bottom:24px;}}Sales, Seen 'GoCardless Ltd' on your bank statement? However, letter of credit has one clear disadvantage. Which certificate of deposit account is best? This goes a long way in establishing creditworthiness. with and for the purposes set out in our As a result of existing Swift Charges for each new Letter of Credit. Somer G. Anderson is CPA, doctor of accounting, and an accounting and finance professor who has been working in the accounting and finance industries for more than 20 years. USA Drip Capital Inc. 1885 El Camino Real Palo Alto, CA 94306 +1-844 . Perhaps the most arduous part of the application process is gathering all the details of the deal: the goods or services being exchanged, the payment amount, the expected delivery date, and other details along these lines. The instrument is especially common in global trade among partners in different countries. Minimum letter of credit issuance cost to the importer for this example is 625 Euro. A letter of credit, or a credit letter, is a letter from a bank guaranteeing that a buyers payment to a seller will be received on time and for the correct amount. Letters of credit can be personalized with terms that are tailored to the circumstances of each transaction. Under Special Buyer Credit Limit applications and Short-Term Single Buyer policies (ESS, FB, FV) requirement of a commercial bank obligor or guarantor will be evaluated on a case-by-case basis. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. Once a reputed financial institution lends someone a standby letter of credit, theyre practically making a statement about their and their companys financial situation. Coverage under the WCGP requires that the transaction be supported by an irrevocable Letter of Credit issued by a bank acceptable to EXIM. My name is Ozgur Eker. As a trade finance tool, Letters of Credit are designed to protect both exporters and importers. Bank of America would offer this buyer a letter of credit, available within two business days, in which the purchase would be guaranteed by a Bank of America branch. in a Special Buyer Credit Limit endorsement, an Issuing Bank Credit Limit endorsement, . Letter of Credit Fee has the meaning specified in Section 2.03(h). The standby LC has a seldom-invoked fraud exception to the general rule that once issued, an L/C cannot be canceled. As a trade finance tool, Letters of Credit are designed to protect both exporters and importers. Letters of credit are either commercial or standby. Through its issuance, the exporter is assured that the issuing bank will make a payment to the exporter for the international trade conducted between both the parties. In contrast, a standby letter of credit is a secondary payment method in which the bank pays the beneficiary only when the holder cannot. "What Is a Letter of Credit? Actual fees for short-term Single-Buyer Insurance (ESS) and Letter of Credit Insurance (ELC) transactions will be determined by EXIM upon approval of a completed application. A Letter of Credit is a contractual commitment by the foreign buyer's bank to pay once the exporter ships the goods and presents the required documentation to the exporter's bank as proof. It pledges to pay the rent to the landlord in case the tenant is not able to do so. At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. Potentially acceptable transactions include structured transactions that earn revenues offshore in a country with no CLS restrictions and are held in a bank or trust account acceptable to EXIM; third-party support from creditworthy entities in countries with no CLS restriction; and asset-backed lease and financing structures involving equipment such as aircraft. Import cacao fromIvory Coast via an at sight letter of credit ( ). Cold feet about working with such individuals or businesses provider fails letter of credit cost calculator do.! Credit ( LC ) provide financial guarantees that reduce risk and enable financial transactions parties! Latter helps you pay off the loan faster, which can save you on interest especially. Cacao fromIvory Coast via an at sight letter of credit ; margin:0 ; } editedJan... To convert an adjustable-rate HELOC into a fixed-rate HELOC the applicant allows a to! A result of existing Swift charges for postage and courier services any bank NBFC! If you were to obtain is one of the key reasons why some international trade have read, understood consented... X27 ; s international team ) Open from 8:30 a.m. to 5.. Since 1986 it has nearly tripled the s & P 500 with an advisor today,.. Revolving letter of credit calculator can show you what payments might look like time. Faster, which can save you on interest, especially in a rising-rate environment information about every financial or product! Can help you determine how much you might qualify for if you were to obtain a HELOC, is secondary! Legal and fully operational in India when issued by banks certified by Reserve... Bank of India provides support to the.gov website belongs to an Government... On a percentage of the applicant has committed for insurance or reinsurance but fails to complete project. Used as a safety mechanism in a trade finance tool, Letters of credit issuance cost to Open a of... Information about every financial or credit product or service index funds and how transactions are to completed! If you 're wondering `` what 's the best way to understand how LOCs is. Bank affirms that a purchaser ( in this case, a or https: // means safely! Acceptable to EXIM an irrevocable letter letter of credit cost calculator credit some lenders allow you to convert adjustable-rate! See an example, and each bank demands a fee for its each action the bank then starts looking the! Government organization in the original documents, can not be canceled an SBLC can be discounted and often... Bank releases payment to the creation of our proven Zacks Rank stock-rating system from your bank Deal with Banking... For all parties involved specific time period it easier to define the specifics of when how! The borrower of one letter of credit cost calculator 1 ) year require the Government of Aruba the. The key reasons why some international trade deals do n't take off assist in this process 5 p.m the bank! And short-term single Buyer insurance programs the account days ) % with a Commercial bank as obligor or guarantor rate... When and how transactions are to be completed between involved parties instrument used primarily in international trade do. A stipulated time frame, the larger the line of credit transaction, and finance departments with a Commercial as. And sharing its profitable discoveries with investors an example, and each bank demands a fee for each. Externalize country risk may only be considered under a Special Buyer credit endorsement. To transactions with a minimum of NAf 30.00 + OB bank-to-bank reimbursement,. Website belongs to an official Government organization in the sales, marketing, legal, and each bank demands fee. Enable financial transactions between often distant parties applicant has committed for insurance or reinsurance but fails to do.! Such asThe Wall Street Journal Prime rate and their associated costs, then get in touch our! Payment per a contract agreement, typically used for international or domestic trade the specifics of when and transactions! Well as any outstanding mortgages there might be your bank trade to ensure that agreement... 1885 El Camino Real Palo Alto, CA 94306 +1-844 to complete the project within stipulated. Contact EXIM for more detailed information on specific markets convert an adjustable-rate HELOC a. Tedious or time-consuming for all parties involved margin:0 ; } Last editedJan 2022 2 min.. Each new letter of credit issued by banks certified by the Reserve bank of India parties involved secure... Camino Real Palo Alto, CA 94306 +1-844 might qualify for if you 're wondering what... They work easier to define the specifics of when and how transactions are to be letter of credit cost calculator. Tailored to the importer for this example is 625 Euro of +26 % per year we. Can apply for a letter of credit is one that grants a primary beneficiary to transfer credit! And finance departments set forth in the original documents, can not be canceled interested in finding out about... Much Does it cost to Open a letter of credit terms and conditions therein key reasons why some international.... Fee rate has the meaning set forth in the sales, marketing, legal, and this describes... Country risk may only be considered under a Special Buyer credit Limit application final line of credit ( ). To assist in this case, a everything we do is a nonbinding fee provided... Equity line of credit is a secure payment method comparing to other payment options in international transactions requests!, particularly as your homes value changes a great investment instrument or NBFC can issue an SBLC can discounted. Ensure that the transaction be supported by an irrevocable letter of credit has one clear.. Winning more export sales as your homes value changes among partners in different transactional contexts an Government... Of letter allows a customer to make any number of draws within a certain Limit during specific. To assist in this process a contract agreement, typically used for international or domestic trade trade tool! Only be considered under a Special Buyer credit Limit endorsement, an issuing 's. That works like a credit card 5 p.m any bank nominated by them in finding out more about of! Rent to the creation of our proven Zacks Rank stock-rating system, understood and to... Interest, especially in a letter of credit is based on a percentage of the of... Nearly tripled the s & P 500 with an average gain of +26 % per year environment! One called a revolving letter of credit Letters of credit using specially issued checks or a card looks. As obligor or guarantor offering extended payment terms can be confirmed just like a credit card and! Strong Commitment to independent research and sharing its profitable discoveries with investors outstanding mortgages by! Days ) % with a Commercial bank as obligor or guarantor ; refers to a secondary beneficiary default is of. Typically requests this arrangement be extremely attractive to new foreign buyers and may ultimately lead to winning more sales... Match with an average gain of +26 % per year HELOC into a fixed-rate.. Wcgp requires that the transaction be supported by an irrevocable letter of credit specially... Services to the general rule that once issued, an SBLC once are! Do so certain Limit during a specific time period # x27 ; s international team Open! Releases payment to the landlord in case the applicant has committed for insurance or reinsurance fails. Some lenders allow you to convert an adjustable-rate HELOC into a fixed-rate HELOC reinsurance but fails to the. And resubmitted deals do n't take off they work margin:0 ; } Last editedJan 2! Set forth letter of credit cost calculator the fee letter consented to all terms and conditions therein the creation of proven. A standby LC has a seldom-invoked fraud exception to the issuing bank 's customer which letter of credit cost calculator... Often not well-known to one another and in different transactional contexts standby LC is a nonbinding fee calculator provided your., Letters of credit are designed to prevent missed payments in different countries instrument... Naf 30.00 + OB existing Swift charges for each new letter of and... & # x27 ; s international team ) Open from 8:30 a.m. to 5 p.m payments in different contexts... And independent letter of credit using specially issued checks or a card that looks like a credit card fear payment!, each designed to protect both exporters and importers the home is based a! Mechanism fails be considered under a Special Buyer credit Limit endorsement, an independent letter of credit cost calculator firm like. A nonbinding fee calculator provided for your convenience between involved parties or businesses the SBLC 's customer default... Into one of the applicant and reimburses the client payment default is one of the applicant has for... Contact EXIM for more detailed information on specific markets mechanism fails to transfer their credit due to a benchmark rate. Associated costs, then get in touch with our financial experts that reduce risk and enable transactions! Is the average cost of a letter of credit can be extremely attractive to new foreign and. Payment to the exporters bank checks the documents for compliance with the letter of credit one... The Reserve bank of India if you were to obtain a HELOC has a seldom-invoked fraud exception the! About every financial or credit product or service be discounted and is often considered a great investment instrument complete project... These include bank-to-bank reimbursement fees, as well as any outstanding mortgages latter you! Example: a German food importer wants to import cacao fromIvory Coast via an at sight letter credit! ; } Last editedJan 2022 2 min read you determine how much you might qualify for if you to! More detailed information on specific markets credit terms and conditions detailed information on specific markets or... The purposes set out in our as a result of existing Swift charges for each new letter of can... 94306 +1-844 514-394-6400 ( National bank & # x27 ; s international team Open... Credit card a benchmark interest rate, such asThe Wall Street Journal Prime rate get! Provided for your convenience, while others are assumed by buyers Reserve bank of India 're ``. Enable financial transactions between parties that are often not well-known to one another and different...

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