BANKING AFFAIRS

Detailed explanation-1: -There are two key types of bank guarantees-a financial bank guarantee and a performance guarantee. Financial bank guarantees are for debts owed, while performance-based guarantees are for obligations laid out in a contract, such as particular tasks.

Detailed explanation-2: -Retrospective guarantee – It is a guarantee issued when the debt is already outstanding. Prospective guarantee – Given in regard to a future debt. Specific guarantee – Also known as a simple guarantee, it’s a type that is used when dealing with a single transaction, and therefore a single debt.

Detailed explanation-3: -Guarantees should not be issued for periods exceeding ten years in any case. The total volume of guarantee obligations outstanding at any time may not exceed 10 per cent of the total owned resources of the bank comprising paid up capital, reserves and deposits.

Detailed explanation-4: -A bank guarantee is an assurance to a beneficiary that the bank will uphold a contract if the applicant and counterparty to the contract are unable to do so. Bank guarantees serve the purpose of facilitating business in situations that would otherwise be too risky for the beneficiary to engage.