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Different Types of Bank Guarantees And Letter of Credit

Letter of Credit and Bank guarantees are beneficial to the importer because they protect them when the exporter does not fulfill its obligations.

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Different Types of Bank Guarantees And Letter of Credit

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  1. Bank Guarantee, Letter of Credit, Types of Bank Guarantees

  2. The most common non funded facilities (where the Bank does not actually part with money, but promises to do so) offered by Banks are Letters of Guarantee and Letters of Credit. • Bank guarantees are the letters ensured by the bank for a successful completion of the commitment made to the clients for future transaction. • This can be import, export as well as an investment.

  3. It is legally binding agreement, given by one person, on behalf of another, to carry out or perform the task. • Bank guarantees may also relate to the promise of discharging the liability of one person, by the other in case of the former's default. • These are used by exporters and importers because the banks function as guarantors of the transaction

  4. Bank guarantees are beneficial to the importer because they protect them when the exporter does not fulfill its obligations. • When bank guarantees are given to an exporter it means that the exporter is protected against noncompliance of the importer. Types of Guarantees: There are two types of Bank Guarantees (B.G) Performance Guarantees

  5. This guarantee, as can be seen, relates to performance. It is issued by a bank or insurance company to a contractor to guarantee the full and due performance of the contract according to the plans and specifications.

  6. Financial Guarantees This type of guarantee relates to money, as against performance. A financial guarantee assures repayment of money, in the event of non-completion of the contract by the client.

  7. THANKS • Under this guarantee, the Bank undertakes to make a good payment, on behalf of its client, to a third party, upon default of its client, to do so.

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