Bank Guarantees and Its Various Types

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. 

Bank guarantees are used by exporters and importers because the banks function as guarantors of the transaction. When an importer purchases a specific amount of goods, the bank would pay the exporter for it if the bank is satisfied with the documentation that the exporter shows.

Performance Guarantee:

This type of guarantee, relates to the performance. In this type of guarantee, the Bank ensures the performance of the contract by its customer, on whose behalf it has issued the guarantee.

This type of guarantee is beneficial to the importer because they protect them when the exporter does not fulfill its obligations. These guarantees are generally given to non for profit organizations, or socially oriented businesses or institutions.

Financial Guarantee: 

This type of guarantee relates to money, as against performance. In this type bank agrees to comply with the request of its client, subject to certain conditions, as per Bank policies.

Under this guarantee, the Bank ensures to make good payment, on behalf of its client to a third party. These types of bank guarantees make sure that the importer makes the payments for the merchandise it has received on a timely basis.