Bank Letters of Guarantee’s Impact on Domestic and International Banking Procedure

Abstract

Bank Letters of guarantee are one of important instruments in domestic and international business intercourses in order to guarantee commitments of contract parties or customers, whereby the bank guarantee to pay a certain amount of cash in case of reversal or not fulfilling the contract, on behalf of guarantee applicant, based on the request against beneficiary. Methodology: Regarding to the volume and extensiveness of current business transactions and letters of guarantee’s functions, commitments guarantees, which are subject to letters of guarantee can’t be perfectly phrased as contract guarantees in civil law, and it seems they are private contracts that are examined in article 10 of civil law. Results: Letters of guarantee’s principle of independence is noticed as most important characteristic of this instrument and it pays the cash without considering the base contract between parties. Letters of guarantee’s many primary traits, including the principle of independence, are accepted based on uniform regulations of warrant letters named as URDG 758. Conclusion: As the central bank of the Islamic republic of Iran accepted these regulations, there are no differences in general framework of issuing domestic and international letters of guarantee, among Iranian banks. Warranties in tender or auction, verity of fulfilling commitments, prepayment and etc. are among regular and common letters of guarantee’s classifications.