Monetizing Bank Guarantee – Mistakes You Should Avoid

 

There are a lot of people who invest in bank instruments and get benefited by the same. When it comes to monetizing the bank instruments, there are plenty of things you should always keep in mind.

There are some of the terms where the monetization can be arranged against financial instruments such as BG’s- Bank Guarantees, MTN’s- Medium Term Notes, SBLC’s- Standby Letter of Credit, LOC’s- Letter of Credit, CD’s- Certificate of Deposit, Zero Coupon Bonds, Treasuries and other instruments as well. The only thing that is important is that these instruments must be owned and not leased. 

The first timer, who goes for bank guarantee monetization, sometimes makes a few mistakes which actually shouldn’t be done. These mistakes can prove to be quite harmful for your investment and this is the reason why you should avoid these. Here are a few things you should avoid while monetizing a bank guarantee –

Buying a Neutered Bank Guarantee – You should never buy a neutered bank guarantee. A lot of financial institutions offer neutered BG and when someone doesn’t have much idea of investing in one, they end up buying a neutered bank guarantee. This is the reason why you should be pretty informative about where you are investing and ask your agent or the bank every little detail you might need before making an investment.

Buying a leased Bank Guarantee – Buying a leased Bank Guarantee is another mistake you make while monetizing your BG. Always remember that a leased BG cannot be monetized at all. Make sure when you buy any kind of Bank Guarantee, it should not be leased or should not contain the word “leased” on it. If you buy such BG, you have nothing but a worthless piece of paper. You cannot use the paper anywhere. Therefore you should make sure that you know exactly what you are buying and be cautious of the terms and conditions of the same.

If the procedures don’t match, don’t buy it – When you see that the delivery process of the issuer of the Bank guarantee doesn’t match with the procedures of the people who helps you monetizing the Bank Guarantee, then do not buy that BG. If you do so, you may not be able to be benefited with the monetization and that will end up hurting your profit as they are not compatible with each other. Both the parties will end up blaming each other and you will be the one to suffer.