Bank guarantees have become common in international business as a hedging tool since the 1950s. The custom guarantee is a standard form of bank guarantee. The customs hedges the customs authority as the beneficiary of the guarantees against the risks and the financial consequences of lost import customs because the re-export of goods that have been temporarily imported does not take place.
A bank guarantee in general is an abstract payment commitment of a credit institution or a bank in the event that certain requirements are fulfilled. The bank assumes a guarantee that certain circumstances have arisen. In the case of a bank guarantee, this can be a possible profit or also a loss, which arises or also does not arise. This means that the bank steps in if a beneficiary from the guarantee suffers a loss, because either a negative or disadvantageous event has arisen, and an desired result has not arisen. The bank is obliged to pay upon demand if it is claimed on from the bank guarantee.
Customs Guarantees (or Garantie du Douane) are avals in the form of a bank guarantee or also a letter of credit from banks that are resident in the importing country, or banks accepted there, as a guarantor for the financial hedging of the customs authorities. An event in which the importer does not meet its duties during the customs clearance such as the payment of taxes and interest will be hedged by means of the customs guarantee and the re-exporting of goods that have only be imported temporarily. A customs guarantee makes it easier to handle the importing procedure. The amount of the guarantee is stipulated by the customs authorities.
A bank guarantee is an abstract payment commitment of a credit institution, or a bank, in the event that certain requirements are fulfilled. The bank assumes a guarantee that certain circumstances have arisen. In the case of a bank guarantee this can be a possible profit or also a loss, which arises or also does not arise. This means that the bank steps in if a beneficiary from the guarantee suffers a loss because either a negative or disadvantageous event has arisen or a desired profit has not arisen. The bank is obliged to pay upon demand if it is claimed on from the bank guarantee.
The sense and purpose of a bank guarantee is mainly to hedge itself against the non-fulfilment of contractual obligations or the failure to fulfil them in accordance with agreements and thus against a possible loss, or to cover the risk of the negative course of a business transaction of whatever type. The bank guarantee is not a payment tool but a hedging tool which brokers have enjoyed recommending mainly in the field of foreign trade since the 1950s due to its simple use and relatively low cost, and it is used by traders or project developers.
The forms which are most frequently used are the bid bond, the performance guarantee, the supply guarantee or the payment guarantee.
For the bank, a bank guarantee means an abstract liability as it can basically not raise any objections against its payment obligation which is linked to the business transaction of the foreign trade partners this is based on.
In this context reference is made to the abstractness of the guarantee undertaking. The abstract structuring of the bank guarantee is particularly due to the fact that the bank providing the guarantee is not involved in the legal relationship. In the conflict of interests between the client of the bank guarantee on the one hand, and the beneficiary on the other, concerning the realisation of the performances, goals and obligations commercially agreed upon, the bank can only act in accordance with its guarantee conditions.
Bank guarantees have become common in international business as a hedging tool since the 1950s. The performance bond is a standard form of bank guarantee. The performance bond is the contractual assumption of a obligation for the orderly fulfilment of contractual claims, e.g. from a purchase contract or contract for work and services. In this case the guarantee for the occurrence of a desired profit or the non-occurrence of a certain loss will be assumed.
A bank guarantee in general is an abstract payment commitment of a credit institution or a bank in the event that certain requirements are fulfilled. The bank assumes a guarantee that certain circumstances have arisen. In the case of a bank guarantee, this can be a possible profit or also a loss, which arises or also does not arise. This means that the bank steps in if a beneficiary from the guarantee suffers a loss because, either a negative or disadvantageous event has arisen, and an intended profit has not been achieved. The bank is obliged to pay upon demand if it is claimed on from the bank guarantee.
The performance bonds secure the claims of the purchaser upon the seller that are due as a result of a delivery or performance that was not orderly, or not in accordance with the terms of the contract, and shall mainly be applied in the areas of planning, development, construction, assembly and execution.
In general, there is a link with the export-import business of industry, trade and commerce. The amount of a performance bond is frequently between 5 and 20 per cent of the contract value, their term runs until the fulfilment of the contract.
The performance bond can additionally be assumed as a dependent guarantee within a specific guarantee. It then serves to strengthen and extend contractual rights, and can also provide liability without fault. However, there is also an independent guarantee by means of which a guarantee is adopted for circumstances which go beyond the success as stipulated by the contract. This kind of independent guarantee can, in particular, be assumed by a third party in a special guarantee contract, for instance as a promise of the minimum durability, or the promise of the loading capacity or construction materials used as provided by the manufacturer.
Bank guarantees have become common in international business as a hedging tool since the 1950s. The bid bond is a standard form of bank guarantee. The bid bond hedges claims of the issuing authority that are due vis-à-vis the provider, for instance in the event of the premature retraction or unilateral change of the offer. The bid bond also hedges the provider in the event of acceptance, if the provider refuses the sign the contract or to provide additional guarantees that have been demanded.
A bank guarantee in general is an abstract payment commitment of a credit institution or a bank in the event that certain requirements are fulfilled. The bank assumes a guarantee that certain circumstances have arisen. In the case of a bank guarantee this can be a possible profit or also a loss, which arises or also does not arise. This means that the bank steps in if a beneficiary from the guarantee suffers a loss because either a negative or disadvantageous event has arisen and a desired profit has not arisen. The bank is obliged to pay upon demand if it is claimed on from the bank guarantee.
The term bid bond (or also a performance guarantee) means the warranty for the fulfilment of a performance undertaking, for instance in the event of longer planning and/or construction times or fulfilment deadlines that were agreed upon in advance. A bid bond is then significant if a matter cannot be directly transferred. The business content in relation to the bid bond frequently concerns larger projects, e.g. from the field of real estate and property development, property planning and the construction of buildings and facilities; these business transactions very frequently have a foreign dimension.
Bid bonds are generally demanded as a condition for calls for tender. A security is frequently demanded as a part of the procedure for the awarding of orders in free competition. If a bidder does not supply on time, or according to performance within the agreements, the claim from the bid bond falls to the client.
In the case of the hedging of a call for tender by means of a bid bond, a bank offers a guarantee that a company that participates in the call for tender submits a serious offer and does not retract its offer before the contract is concluded.
Financial services are in the broadest sense all services which relate to financial transactions. These can be offered by banks, financial service providers, financial product distributors, insurance companies, insurance brokers, agents and credit card organisations etc.
In this huge jungle of potential financial service providers it is a real art to find the right partner for each client requesting consultancy, financial solutions or decision-making aids. It becomes a problem if the person requesting consultancy is not able to precisely express his wishes. As a result the client then generally has his own wishes pre-formulated to him by consultants who have been well trained rhetorically, and is then presented a range of solutions and the client then ultimately complies with the "recommendation" of the provider of financial services as he does not know any better. The result is always good but rarely for the client.
The following are referred to as financial services among others:
• The brokering of financial products
Sales organisations mainly broker a comprehensive range of financial products such as loans, insurance policies, investment products and similar items to private consumers in particular. Brokers, bankers and insurance companies now also like to work as agents by including third-party products of other companies within their range of offers and brokering them to their clients. In this way all the providers of financial services make an effort to offer normal clients an all-encompassing range of financial services. “Everything from one source”. Financial brokers are contacts but they are not the contractual partners of the business transactions brokered.
• Investment consultancy
When people hear the term investment consultancy they tend to understand consultancy for an investment to be made in the stock market, in property, in shares, in funds or other products. The investment consultancy solely comprises the consultancy, the actual investment decision is always, by contrast with asset management, by the client himself. Investment consultancy is offered both by banks and also by so-called independent financial product distributors and financial consultants. In this case the client has an enormous choice of potential consultants which more or less intensely focus upon their own individual interests when recommending financial services.
• The operation of a trading system
A trading system is a network or multilateral system that is similar to the stock market that is set up and operated by a provider of financial services, an investment firm or a market operator that has the goal of merging a large number of providers and clients demanding services on the financial according to certain rules.
• Security placement business
An emission constitutes the issuing of securities and their placement on an organisational money and capital market such as a stock market or also private placements.
• The acquisition brokerage of financial instruments in the name of third parties and for third party account
Financial instruments can for instance be assets, financial obligations, equity capital instruments, loans and receivables.
• Finance portfolio administration
Asset management is one of the key financial services and describes the making of investment decisions by a third party who acts as an asset administrator.
• The procurement and the sale of financial instruments for their own account as a service for others
Trading with financial instruments is called proprietary trading by banks. These generally refer to money, securities, currencies, precious metals or derivatives. Proprietary trading is performed in the institution’s own name and for its account and is not directly triggered by a client business transaction.
Other potential financial services include:
Documentary Letters of Credit
A letter of credit is a contractual agreement that is laid down in writing in which a lender makes an undertaking to an importer or the applicant for a letter of credit, to pay out an amount stated in the letter of credit in accordance with its instructions to an exporter or beneficiary upon the fulfilment of the conditions stipulated.
The documentary letter of credit has demonstrated its critical importance in international commercial trade. Both documentary letters of credit and also the documentary collection assume a payment hedging and financing function. They are both used accordingly as tools for short term foreign trade financing and balance out interests between purchasers and sellers.
A documentary letter of credit is a directly enforceable, abstract, limited payment undertaking of a bank as a partner of an importer. Abstract means that the payment undertaking of a bank is legally detached from the underlying transaction and is independent alongside the purchase contract. Conditional means that the fulfilment of the payment undertaking is tied to conditions which are always of a documentary nature.
The purchaser is provided with the security through the documentary letter of credit that he must only pay if the seller has delivered the goods ordered and has proved this through submitting the orderly documents. The purchaser is provided with the security that he will receive the sales proceeds following the delivery of the goods and following the submission of the orderly documents to the advising bank.
A purchase contract is initially concluded based on a commodities transaction which lay down a documentary letter of credit as a condition of payment to initiate the sequence. The provider of the letter of credit (importer) commissions its bank with the task of issuing a letter of credit to benefit the beneficiary (exporter) subject to recourse provisions. The bank of the importer irrevocably issues the letter of credit in favour of the exporter. In this case it makes use of a bank in the exporter’s country stipulated to it by the importer for the processing. The goods are described in terms of the type, quantity, quality and packaging in the letter of credit and deadlines are stated for the shipment of the goods from the loading location to the location were the goods are unloaded and for the submission of the documents. In addition all the documents are specified which trigger off the payment of the letter of credit:
- commercial invoice;
- certificate of origin;
- freight invoice;
- packing list;
- quality certificates;
- preshipment inspection certificates;
- shipping documents:
Bank guarantees have become common in international business as a hedging tool since the 1950s. The payment bond is a standard form of bank guarantee. A guarantee of payment hedges the creditor in the event that the debtor does not meet his payment obligations or does not meet them on time or only partially meets them.
A bank guarantee in general is an abstract payment commitment of a credit institution or a bank in the event that certain requirements are fulfilled. The bank assumes a guarantee that certain circumstances have arisen. In the case of a bank guarantee this can be a possible profit or also a loss, which arises or also does not arise. This means that the bank steps in if a beneficiary from the guarantee suffers a loss because either a negative or disadvantageous event has arisen and an intended profit has not been achieved. The bank is obliged to pay upon demand if it is claimed on from the bank guarantee.
The guarantee of payment secures any eventual claims of seller upon the purchaser for the payment of the purchase price on the agreed date. If is frequently used in conjunction with projects and the financing loands that are necessarily for the realisation if the collateralising bank does not want to assume the payment risk on its own. Each active process is associated with a transaction.
The guarantee of payment is frequently used instead of a letter of credit in the export-import business - in the event of supply "against outstanding account". It generally amounts to purchase price or a portion of it. The term generally runs until the term of payment, plus 15 days for instance. The significance of the guarantee of payment must therefore be observed because abstract guarantees that are payable upon the first request for payment are the key requirement in the field of international trade. Due to the status of the guarantee of payment the importer's bank shall undertake to pay the purchase price to the exporter in the event the importer is unable to pay. The exporter secures itself the observation of the terms of payment through the guarantee of payment.
A finance group generally consists of a cooperative of several companies through which both special financial services and also financial tools for a certain circle of interested parties can be procured.
In special cases the finance group is a private banking concept where a certain, upmarket clientele obtains marked benefits in the field of financial services as shareholders of the finance group compared to the conventional market for the public. In this process the shareholder must pay a minimum deposit. Those who have been accepted as a shareholder generally do not require any additional share purchases for all the business transactions with the finance group. Non-shareholders cannot participate in the financial services and financial instruments offered by the finance group.
The finance group thus has the advantage through a so-called shareholders’ agreement that the majority of people looking for a solution cannot financially overcome this “entrance barrier” of stockholding and the management and specialist departments are thus spared ridiculous queries about financial services and financial instruments from the general public market. This saving of time obviously benefits the shareholders of the finance group: a shareholder will always take priority in terms of the processing by the finance group over a new client and will be able to enjoy rapid handling in terms of his selection of a financial instrument or a financial service.
In general more complex financial services from such finance groups will hardly be of interest for an average client. To a large extent there is a philosophy on the part of finance groups from the private banking sector that financial services and products that are suitable for the masses should not be included within the offer in the first place. The personal relationship between the clients and the finance group is very marked as it must be possible to link high quality financial services such as escrow accounts, fund management and offshore banking in an interdisciplinary manner with additional services from the peripheries of the financial group without the client having to consult different contacts.
A finance group with various affiliated companies, high quality contacts, exclusive financial services and financial instruments, and individual problems is deemed as being an extremely high performance organisation for the exclusive clientele.
Lean-efficient organisation, high mobility, core competence, absolute confidentiality and secrecy as well as the option of offering services from distant places makes the finance group a worthwhile partner both for businesspeople and also in particular for private and/or customised solutions in the financial services sector. The demand determines the success of the finance group in the initial phase, following this the finance group further develops within the market through recommendations and its service quality.
Innovation of the financial services and tradition – both principles are and were always successfully united in the work of a finance group. A lot of finance groups have pressed ahead with advances since they were founded and always been open for new developments in the fields of financial instruments, banking and financial services.
Especially now in the age of globalisation, financial crises, increasing inflation and the reorientation of financial services that is commonly being called for, such finance groups are extremely worthwhile as reliable partners. On the one hand stability is represented by them and on the other hand they counter inflation and the risks of volatile markets with progressive financial service concepts. A successful finance group has defined the four basic pillars of their financial services offer in the form of confidentiality, risk minimisation, return optimisation and flexibility and frequently serves several generations in the retail banking sector or entire company groups with customised solutions. Their independence in relation to financial services is imperative for the definition of a transparent selection of appropriate financial instruments and investment options with high levels of flexibility whilst using ideal investment mechanisms, which are currently present in the market, that are normally only available to certain and very wealthy market participants.
Globalisation has made our world smaller, more rapid, more mobile and more easy to penetrate. Apart from the real distances, which are still the same distances as they were 1000 years ago, changes in information technology, logisgtics and transportation technology have prepared the way for globalisation at breathtaking speed. The basic principle of a networked world with a global division of labour leads to a new joining together of people and bridging of cultural, political and other barriers.
China and India, as the world's two most populous countries will produce approx. 50% of global economic output in the foreseeable future. The Chinese are building bridges, motorways, airports, hospitals, dams, pipelines, refineries and above all harbours, whilst the United States comes across as being antiquated and run down in terms of its internal logistics. The People's Republic of China is the world's greatest creditor, even heading the World Bank, the USA is one of the greatest borrowers with a ranking that is falling and the pending risk of insolvency.
Globalisation is primarily based on the rationalisation efforts of the exporting economies, but attracted growing local demands in a lot of areas in the world: in a lot of countries a well organised middle class is forming with extremely high levels of demand for high quality branded products. A lot of emerging nations have grasped that they initially have to invest in infrastructure and education to stabilise growth and prosperity. Brazil, India, China, Russia and South Africa are pioneers of a development which has gigantic demand potential.
The demand has blown up in both directions: If there is an increasing demand for consumer electronics products, shoes and toys from Asia the Asian demand for special machines, high quality cars and coveted fashion and brand products in Europe will also increase.
This "coming together" of different countries and regions with different systems, different politics, different cultures and customers is a positive effect of globalisation, as in overall terms people are becoming more and more healthy and prosperous. However, there are great regional differences, as there is a direct link between economic growth and regional social reform: People who live in a port town will tend to notice the changes more markedly than other people who live a long way away from the large flows of commodities.
The dynamics of globalisation demonstrate the cooperative arrangements emerge from competition. Only those people will be successful in the future who network together and who keep a look out for parallel areas of interest even in the absence of an explicit agreement. Success means formulating offers which do not correspond with a production wish but are in line with demand. In particular success means further developing your service in an authoritative manner in accordance with your demand. The world is moving on from the "smallest common denominator" to the "largest common multiple."