Research Article

Bank demand guarantee and standby letter of credit as collaterals in international trading operations

Aleksandar Lukic

KBM Bank AD, Department of International Payments, Kragujevac, Serbia

Author E-mail: acalukic@eunet.rs

Accepted 18 September, 2014

Abstract

Bank demand guarantees have become an established part of international trade. This 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. In this sense bank demand guarantees are similar to standby letters of credit. Similarities and differences among them are the subject of this paper.

Keywords: bank guarantee, demand guarantee, contract, security claims, standby letter of credit