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Who are the parties to a bank guarantee as an undertaking independent of the underlying transaction?

A bank guarantee is an undertaking by the issuing bank to the beneficiary. Its terms govern the bank’s obligation, independently of the underlying agreement between the…

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Who are the parties to a bank guarantee as an undertaking independent of the underlying transaction?

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Answer and explanation

Correct answer C

A bank guarantee is an undertaking by the issuing bank to the beneficiary. Its terms govern the bank’s obligation, independently of the underlying agreement between the beneficiary and the customer who arranged the guarantee.

The customer’s arrangements with the issuing bank and any relationship with a counter-guarantor are separate from the bank’s undertaking to the beneficiary.

Option feedback

Option A

The customer and beneficiary are parties to the underlying transaction.

Option B

The customer and issuing bank have a separate arrangement for procuring the guarantee.

Option C

The issuing bank makes its guarantee undertaking to the beneficiary.

Option D

A counter-guarantee is a separate undertaking and does not identify the parties to the bank’s guarantee to the beneficiary.

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