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In this video tutorial, the presenter explains how to create a modified block business letter using open punctuation. Open punctuation means omitting the colon after the salutation and the comma after the complimentary close, distinguishing it from mixed punctuation, which includes both. To format the letter, set a tab at 3.25 inches on the ruler, aligning the date line and closing lines to this midpoint. The typing line is 6.5 inches long, with the midpoint at 3.25 inches. The presenter demonstrates how to set this up with either a blank document or after typing the letter, ensuring correct formatting and spacing between the letter's parts.