Banking financial instruments are often used in trade finance when suppliers, or vendors, are purchasing and selling goods to and from overseas customers with whom they have established a limited business relationships. The instruments are designed to reduce the risk taken by each party.
A Bank Guarantee, like a line of credit, guarantees a sum of money to a beneficiary. Unlike a line of credit, the sum is only paid if the opposing party does not fulfil the stipulated obligations under the contract. This can be used to essentially insure a buyer or seller from loss or damage due to non-performance by the other party in a contract.
The BG would pay an agreed-upon sum to the seller. Similarly, if the supplier was unable to provide the goods, the bank would then pay the purchaser the agreed-upon sum. Essentially, the bank guarantee acts as a safety measure for the opposing party in the transaction.
Brooks Pope & Co facilitate the issuance of Standby Letters of Credit. An SBLC serves as a tool that provides a sense of security. Whether the product being sold is a service or a shipment of physical goods, an SBLC can provide protection. If the bank's customer fails to satisfy certain terms of an agreement, the bank – not the customer who failed to deliver – pays the beneficiary.
SBLC’s are used for international trade as well as domestic transactions, though more frequently for domestic transactions. Those might include everything from building projects to getting the electricity turned on.
A Letter of Credit is an obligation taken on by a bank to make a payment once certain criteria are met. Once these terms are completed and confirmed, the bank will transfer the funds. This ensures the payment will be made as long as the services are performed.
An LoC could be used in the delivery of goods or the completion of a service. The seller may request that the buyer obtain an LoC before the transaction occurs. Brooks Pope & Co can facilitate the purchase of this letter of credit and forward it to the seller's bank. This letter would substitute the bank's credit for that of the client, ensuring correct and timely payment.
A Sovereign Guarantee is a guarantee that all obligations will be satisfied when and if the primary obligor goes into default
A Medium Term Note is a debt note that usually matures in 5–10 years, but the term may be less than one year or as long as 100 years as an instrument, created by banks and sold to investors, having a predefined face value, date of maturity, and annual interest rate. Though an MTN has similar characteristics to other debt notes, it is completely unique by virtue of its flexibility, price, resale potential, and ability to be purchased at a discount. MTNs offer more flexibility to the issuer and investor both in terms of structure and documentation.