Foreign Exchange letter of guarantee is a commitment that according to its contained rules the guarantee applicant is made committed towards the guarantee beneficiary.
Foreign exchange guarantees are two kinds including: A. Imports B. Exports
A. Export foreign exchange guarantee: a banking guarantee which is an irreversible commitment by a bank for paying the guaranteed amount if the commitments of the contract are not done by the second person (the seller).
Various kinds of Export Letters of Guarantee include:
- Tender (Bid) Bond Guarantee.
- Performance Bond Guarantee.
- Advance Payment Guarantee.
- Retention guarantee.
- Payment Guarantee.
- Other submitted Guarantees.
Issuing these letters of guarantee is permitted for producers of goods (Industrial, Agricultural, Mineral, etc.) and the exporters of submitted technical and engineering services.
B. Import Exchange letters of guarantee: a guarantee which is issued in return to mutual guarantees of foreign or internal banks for internal customers and in order to provide support and assurance referring to Imports of goods and services, repayment guarantee, prepayment or supporting the confidence of tenders and bonds holders.
Various kinds of Import Letters of Guarantee:
- Performance guarantee: these guarantees are designed to ensure that the goods are delivered, or services are provided in accordance with the terms and conditions mentioned in the contract and at the due time, whether the contract is properly performed or not.
- Advance and Interim Payment guarantee: it guarantees the advance payment of the employer to the contractor (referring to the L.C or irrelevant to the L.C) for the benefit of the employer.
- Tender guarantee (Bid Bond): this type of guarantee is issued to prevent the applicants from refusing to accept the awarded contract and guarantees its acceptance by the bidder.
- Retention guarantee: The beneficiary pays the amount of a project after receiving the statements. In some cases, a percentage of each presented statement will be blocked by the beneficiary as a guarantee until the certain delivery is performed. So, if it is necessary for the applicant to receive the blocked amount, it will be released by presenting the Retention guarantee to the beneficiary.
- Customs guarantee: it is issued for the benefit of the countries customs and guarantees their taxes and fees.