Research On Risks And Precautions Of Bank Guarantee And Standby Letter Of Credit

With the deepening of the globalization of trade, People has higher requirement for international trade settlement services. Commercial letter of credit needs complicated procedures, documents and high cost. By contrast, bank guarantee and standby letter of credit are more convenient with simple procedures, documents and low cost. So the bank guarantee and standby letter of credit are becoming more and more popular from the merchants and banks in the world. Bank guarantee and standby letter of credit are international trade settlement tool and play an important role in trade settlement and financing insurance. Nowadays, as main forms of the international guarantee, bank guarantee and standby letter of credit are widely applied in international economic cooperation. For a deeper understanding of both application in international trade, this paper describes the changes of international practice which is suited for them. In international trade, although bank guarantee and standby letter of credit sometimes can be applied in the same way, they have many differences. Firstly this paper describes their definition, classification and legal characteristics, etc. Then it says the similarities of bank guarantee and standby letter of credit from the parties in law, purpose, scope and nature’ view. In order to be able to better grasp the application in the international economic trade, By means of the comparison of the applicable international conventions, their independence, payment way, open condition and payment basis, the paper concludes their differences on the trading operations. As bank guarantee and standby letter of credit have their own characteristics, Each party is faced with a certain degree of risk in international trade. In order to promote international economic cooperation to proceed stably and smoothly, this paper respectively analyzes the risks from the perspective of the applicant, the beneficiary and the issuing bank and puts forward the corresponding countermeasures on this basis. This paper discusses risks and preventive measures of the bank guarantee and standby letter of credit in detail and hopes to help further promote the development of international economic trade and effectively safeguard the legitimate rights and interests of all parties.