Often situations arise due to various reasons when and where a company or business is unable to pay a certain supplier for the products or services it has provided. A guarantee letter comes in handy in such situations.
A letter of guarantee is a kind of contract that a bank issues on behalf of a customer who has agreed to buy goods from a supplier. Even if the bank's customer defaults, the letter of guarantee assures the provider that they will be paid. A consumer must apply for a letter of guarantee in the same way that they would for a loan. If the bank is okay with the risk, they will provide the letter to the consumer in exchange for an annual charge. A bank may also issue a letter of guarantee on behalf of a call writer, confirming that the writer owns the underlying asset and that the bank would deliver the underlying securities if the call is executed.
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