Question

What is Bank Guarantee? List any of its three features.

Hint:

Remember: A bank guarantee builds trust — if the customer fails, the bank pays on their behalf.

Answer 1

A Bank Guarantee is a promise made by a bank to cover a loss if a borrower fails to fulfill the terms of a contract or obligation.
It acts as a safety net for the party receiving the guarantee, ensuring that payment will be made even if the customer defaults.
It builds trust in business transactions where one party may have doubts about the other’s ability to meet commitments.
Three features of a bank guarantee are:
1) Third-Party Assurance: The bank acts as a guarantor between two parties, providing financial security to the beneficiary.
2) Conditional Payment: Payment under a bank guarantee is made only if the customer fails to meet the agreed obligations.
3) Different Types: Banks offer various types of guarantees such as financial guarantees, performance guarantees, and bid bond guarantees to suit different business needs.