Interested to Buy Any Domain ? << Click Here >> for more details...
what is the difference between bank guarantee and letter of
credit?
- 1 Answers
- 11949 Views
- I also Faced
- E-Mail Answers
Answer Posted / hanu
While both being non-funded or contingent facilities i.e.
they depend on the happening of a certain event, the basic
difference between the two is that of the parties involved.
In a bank guarantee, three parties are involved; the bank,
the person to whom the guarantee is given and the person on
whose behalf the bank is giving guarantee. In case of a
letter of credit, there are normally four parties involved;
Issuing Bank, Advising Bank, the applicant (importer) and
the beneficiary (exporter).
While appreciating the above. The more comprehensive
response to this question would be a below:
A bank guarantee and a letter of credit are similar in many
ways but they're two different things. Letters of credit
ensure that a transaction proceeds as planned, while bank
guarantees reduce the loss if the transaction doesn't go as
planned.
A letter of credit is an obligation taken on by a bank to
make a payment once certain criteria are met. Once these
terms are completed and confirmed, the bank will transfer
the funds. This ensures the payment will be made as long as
the services are performed.
A bank guarantee, like a line of credit, guarantees a sum
of money to a beneficiary. Unlike a line of credit, the sum
is only paid if the opposing party does not fulfill the
stipulated obligations under the contract. This can be used
to essentially insure a buyer or seller from loss or damage
due to nonperformance by the other party in a contract.
For example a letter of credit could be used in the
delivery of goods or the completion of a service. The
seller may request that the buyer obtain a letter of credit
before the transaction occurs. The buyer would purchase
this letter of credit from a bank and forward it to the
seller's bank. This letter would substitute the bank's
credit for that of its client, ensuring correct and timely
payment.
A bank guarantee might be used when a buyer obtains goods
from a seller then runs into cash flow difficulties and
can't pay the seller. The bank guarantee would pay an
agreed-upon sum to the seller. Similarly, if the supplier
was unable to provide the goods, the bank would then pay
the purchaser the agreed-upon sum. Essentially, the bank
guarantee acts as a safety measure for the opposing party
in the transaction.
These financial instruments are often used in trade
financing when suppliers, or vendors, are purchasing and
selling goods to and from overseas customers with whom they
don't have established business relationships. The
instruments are designed to reduce the risk taken by each
party.
Read more:
http://wiki.answers.com/Q/What_is_the_difference_between_a_b
ank_guarantee_and_a_letter_of_credit#ixzz4QcLJ0S3x
| Is This Answer Correct ? | 8 Yes | 0 No |
Post New Answer View All Answers
You are from IT field then why you are searching for bank PO job?
hi frns please tell how to prepare for syndiacate bank asst manager exam .
assets and liailitie, bank duties, ombudsman, contingent liability
i am life sciences graduate.how should i justify this degree with bank po in the interview?
I m a BTECH ELECTRICAL ENGINEER.Please can u give some questions and answers asked in icici bank for the po post.
hello sir this is K.Nagendra.I was prepare to bank po's exams.But I don't know how to prepare that exams so please give me some suggestions.And send me some importent model Qwestion papers. This is my email Id:kavali.nagendra@gmail.com
hai friends.... I applied for asst manager(IT) in NABARD.I'm qualified in NABARD prelims 2010... I've completed my MCA in june 2010.... I'm eligible to continue... please answer my question please....
i appeared for andhra bank po interview recently.i scored 159/250 in ibps in gen category.i have 4 yrs banking exp in sbi as clerical staff.with jaiib.but my interview was not so good.wat r my chances to get selected
please mail me the frequent questions asked at the time of den bank interview.
Question Bank exam for - Porbationary officer model qustion papers I want Please send by email id. as soon as possible
Hello Sir I have done BAMS and MBA Health and hospital management. I have clear Indian bank specialist office credit sale II exam and interview is on date 3 aug 2015. Please suggest some good answers for question why you want to join bank after completion of your degree in medical profession?
hi iam narendra . please send me ing vysya bank & axis bank 'po's interveiw questions with answers . my email id is naren_battula@rediff.com
Dear Friends, I am doing my MCA Final Year. I am selected for postal assistant examination?. I want to go for job only. But i don't have eye sight of 6/12. will they reject after selecting me? Kindly reply
dear sir.. i have completed my degree.. now im ready to applying for IBPS CLERK EXAM..so pls given the details of clercal exm..i mean syllabus and marks? also minimum cut off marks for clerical exm?
What is the role of RBI ?
