The LOI as it is now used is a misunderstood application of poorly informed brokers and traders. A more proper application based on established custom and practice in International trade, going back even to the old medieval "Law Merchant" (Lex Mercantilis) isɅ. Buyer requests a quotation _ in modern usage this is an RFQ/Request For Quotation _ NOT an LOIǎ. Seller may then reply with a Quote. Buyer confirms receipt of quoted prices, and requests an OfferǏ. Seller replies with an offer (the firm or full offer is the so_called "FCO" in Internet Broker_speak).
In the business world letters of intent are often used to prove to potential investors that a potential deal or merger may take place. Without such proof, investors may not be so willing to loan out the much needed money. While letters of intent are common in the business world there are also other instances where letters of intent are used.