What is the difference between Letter Of Credit and Bank Guarantee? Explain.

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Solution

Dear student,

The differences between Letter of Credit and Bank Guarantee are:

Letter of Credit Bank Guarantee

It is a financial document for assured payment (undertaking by buyer's bank to make payment to seller). against the document states. It is guarantee given by bank to beneficiary on applicant's behalf to effect payment if applicant defaults.

It involves less risk for merchant more for bank. It involves more risk for merchant less for bank.

it involves 5 or more parties. it involves 3 parties.

it is suitable for import export business. it is suitable for government contracts

Regards

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Similar questions

The document containing the guarantee of a bank to honour drafts drawn on it by an exporter is

(a) Letter of hypothetication

(b) Letter of credit

(d) Bill of exchange

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Select the correct answer using the codes given below:

Which of the following bank/banks is/are insured by the Deposit Insurance and Credit Guarantee Corporation?

Select the correct answer using the codes given below:

Deposit Insurance and Credit Guarantee Corporation (DICGC) is a subsidiary of RBI.

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Letter of Credit	Bank Guarantee
It is a financial document for assured payment (undertaking by buyer's bank to make payment to seller). against the document states.	It is guarantee given by bank to beneficiary on applicant's behalf to effect payment if applicant defaults.
It involves less risk for merchant more for bank.	It involves more risk for merchant less for bank.
it involves 5 or more parties.	it involves 3 parties.
it is suitable for import export business.	it is suitable for government contracts