What font do you use on a formal letter?

Unless you understand at least some basics of the 'formal language' associated to different fonts, I would recommend going very traditional with "Times New Roman" for most any formal letter I can think of.

If you absolutely need to express 'modernness' or clarity, you can probably revert to "Arial", but be aware that usually 'sans serif' fonts like Arial are considered more difficult to read for text in paragraphs.