宁波大学考核答题纸

（20 19 —20 20 学年第 1 学期）

课号： 013l03T01 课程名称：国际金融函电 改卷教师：
学 号 ： F16401007 姓 名 ： JESCA FRANK JAMAL
得 分：

EXTENSION FOR BANK LETTER WRITING.

LETTER OF GUARANTEE.

Abstract

Letters of guarantee are often used when one party in a transaction is uncertain

that the other party involved can meet their financial obligation. This is

especially common with purchases of costly equipment or other property.

However, a letter of guarantee may not cover the whole amount of the debt. For

example, a letter of guarantee in a bond issue may promise either interest or

principal repayment, but not both.

Introduction

A Letter of Guarantee refers to a written commitment granted by a bank on the

request of a client who has engaged in a sale agreement to purchase goods from

a supplier, providing assurance that the customer will fulfill the obligations of

the contract entered into with the supplier. Apart from the purchase of goods, a

letter of guarantee may also be issued in technology trade, contracting and

construction, financing from a financial institution, large equipment leases, and

goods import-export declaration. It may also be issued if requested by a call

writer to give a guarantee that they own the underlying asset and that it will be
delivered by the bank if the call is exercised.

When is a letter of guarantee required?

1. New supplier

A customer will often provide a new supplier with a letter of guarantee because

the new supplier does not have a history of transactions with the customer and,

therefore, there exists a lot of uncertainty between the two parties. The practice

is most common when the customer wants to purchase costly machinery and

equipment, and the supplier does not want to provide trade credit.

2. Start-up company

Early-stage companies may not have enough liquidity to finance the purchase of

goods at the start, and they may ask the bank to provide a letter of guarantee

when purchasing such goods. Also, since they do not have a credit history with

the supplier, it would be impossible for the supplier to judge the company’s

ability to pay.

3. Dealing with a supplier outside the usual trading area

Companies that do business overseas may be required to provide a letter of

guarantee by suppliers to show their commitment to pay for the products. This is

because suppliers may incur additional costs in supplying goods outside the

country and they want a guarantee from a bank that they will receive the

payments if the customer fails to pay.

 Basic procedures and parties of letter of guarantee.

Beneficiary

The beneficiary and the applicant signs the underlying contract. Beneficiary

requires the applicant to open a letter of guarantee.

Applicant

Applicant applies for a letter of guarantee .Guarantor opens a letter of guarantee.

Guarantor

Guarantor sends the letter of guarantee to the beneficiary.

Under the breaching of the contract of the applicant, the beneficiary uses letter

of guarantee to ask for compensation from the guarantor, and guarantor makes

payment. Then the guarantor asks for reimbursement from the applicant.

BASIC CONTENTS OF A LETTER OF GUARANTEE.

v BASIC INFORMATION

a) The name and address of the beneficiary;

b) The name and address of the applicant;

c) The name , nationality, and detailed address of the guarantor bank;

d) The type, purpose, reference number and issue date of the

guarantee
 e) The relative contract number

v Liability clause ( most important content )

a) The guarantor bank’s liability ( primary obligation or accessory

obligation)

b) The claiming condition and claiming method.

Claiming condition is the specific condition under which the

guarantor undertakes to pay. It is the specific documents

requirement when claim occurs.

Claim method means which way T/T reimbursement ) is to be used.

v Guarantee amount

a) The currency and amount of the guarantee

b) Principal and interest

v Different dates ( Terms)

a) The duration or expiry date of the guarantee; ( specific date, the

date after an event occurred, during a period of time after an event

occurred

b) Coming into force (valid)

v Condition letter of guarantee and Demand letter of guarantee

a) Condition letter of guarantee means the applicant sets some

restrictions to claiming rights and accepting

b) First demand letter of guarantee means the applicant doesn’t set any

restrictions to claiming rights and accepting, it is unconditional

letter of guarantee.
TYPES OF LETTERS OF GUARANTEE.

Ø Revocable and Irrevocable letter of guarantee

Revocable letter of guarantee means without the consent of

the other related parties, the guarantor at its discretion.

Irrevocable means that without all the consent of the all the

related parties, the letter of guarantee can not be cancelled

or amended.

Ø Exporting letter of guarantee and Importing letter of

guarantee

1. Exporting letter of guarantee

1) Tender/ bid bond Guarantee

In international market, major project usually

opens binding so as to attract qualified

companies. The tenderer has to provide letter of

guarantee of some amount so as to indicate its

sincerity.

2)Perfomance guarantee

The applicant uses perfomance guarantee to

assure to the beneficiary that it will perform

contract, delivery of goods at the schedued date

with quantity and quality.

3)Advance payment guarantee

It is also called the repayment guarantee or

 down payment guarantee. Under this guarantee,

the bank promises that if the exporter can not or

refuses to fulfill its perfomance of contract, the

bank will return to the import advanced payment

plus interest to the importer.

2. Importing letter of guarantee

1) Payment guarantee

In sight payment guarantee, the guarantor

guarantees that upon the receipt of shipping

documents , it will make payments to the

beneficiary on presentation. Payment guarantee is a

typical on demand

In sight payment guarantee, the guarantor

guarantees that upon the receipt of shipping

documents , it will make payments to the

beneficiary on presentation. Payment guarantee is a

typical on “demand”it bears the same functions as

letter of credit to promise the payment of the

importer.

2) Lease Guarantee

When importing machinery equipment or

transportation vehicle , the guarantor bank

guarantees to the beneficiary that the lessee will

 pay the rent in accordance with the terms and

conditions of the leasing agreement.

3) Compensation guarantee/assembly and processing

guarantee

In compensation trade, at the request of the

importer (equipment purchaser ), the guarantor

bank will issue compesation guarantee in favor of

the exporter ( equipment supplier), promising when

the importer has received the equipment in

accordance with the contract terms, he will deliver

the product produced by the imported equipment to

the exporter or the designated third party to

reimburse the value of the imported equipment.

Lastly, The amount guaranteed by the letter does not appear on the company’s

balance sheet, but is noted as a contingent liability (a liability that may or may

not occur) in the notes to the financial statements.