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Application letters are required to be sent with your resume to provide your first opportunity to present yourself to a potential employer. Careers and Employment provides a resume checking service which includes application letters.
Together with your resume it provides you the opportunity to sell yourself as a highly suitable candidate for the job. There are usually two types of application letters - one is a response to an advertisement, the other is seeking for possible vacancies and is referred to as a 'speculative' or 'cold canvas' letter.
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