Bonds, Guarantees, Letters of Credit

Abstract

In international commercial affairs it is quite common to use special forms of securities in order to ensure payment or performance of contracts. Most international real estate sales, developments contracts and electrical and mechanical plant projects are accompanied by the issue of such securities. Being familiar with all forms of bank securities is an essential requirement of international business. Strictly defined a security is an interest in property which secures the performance of an obligation to pay, to undertake something or to refrain from doing something. In the international context all three kinds of securities appear, including: A security, which ensures the repayment of a loan or advance payment or simply a security ensuring payment of the agreed price for services or delivery of goods A security, which secures that a bidder does not revoke his offer until the submission date A security by which performance of the works is guaranteed Usually a bank or financial institution is involved in such kind of transactions. By consequence trade finance transactions usually create a tripartite relationship between the parties to a main contract, for example a construction contract for works between the employer and the contractor, for which a bank may grant security.