Bank Guarantees: Basics

A bank guarantee/bond is an instrument provided by a bank or other lending institution to secure obligations in accordance with contractual agreements, whether the obligations are those of importers (buyers) or exporters (sellers). The parties to a bank guarantee/bond are covered here before we look at the different types of guarantees/bonds. We explore the costs of such arrangements and collateral that it typically pledged. Finally we investigate the benefits and drawbacks of bank guarantees/bonds and how they compare to other trade finance security instruments.