Demand Guarantee

AAA

DEFINITION of 'Demand Guarantee'

A type of protection that one party in a transaction can impose on another party in the event that the second party does not perform according to predefined specifications. In the event that the second party does not perform as promised, the first party will receive a predefined amount of compensation by the guarantor, which the second party will be required to repay.

INVESTOPEDIA EXPLAINS 'Demand Guarantee'

For example, an importer of cars in the U.S. can ask a Japanese exporter for a demand guarantee. The exporter goes to a bank to purchase a guarantee and sends its to the American importer. If, for example, the exporter does not fulfill its end of the agreement, the importer can go to the bank and present the demand guarantee. The bank will then give the importer the predefined amount of money specified, which the exporter will be required to repay to the bank.

A demand guarantee is very similar to a letter of credit except that the demand guarantee provides much more protection. For instance, the letter of credit only provides protection against non-payment, whereas a demand guarantee can provide protection against non-performance, late performance and even defective performance.

RELATED TERMS
  1. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a ...
  2. Signature Guarantee

    A form of authentication issued by a bank or other financial ...
  3. Guarantor

    A person who guarantees to pay for someone else's debt if he ...
  4. Bank Guarantee

    A guarantee from a lending institution ensuring that the liabilities ...
  5. Import

    A good or service brought into one country from another. Along ...
  6. Export

    A function of international trade whereby goods produced in one ...
RELATED FAQS
  1. What's the difference between a bank guarantee and a letter of credit?

    A bank guarantee and a letter of credit are similar in many ways but they're two different things. Letters of credit ensure ... Read Full Answer >>
  2. How do I find a good personal bankruptcy lawyer?

    While it is not necessary to hire an attorney to file bankruptcy, the rules that govern bankruptcy can be extremely complex, ... Read Full Answer >>
  3. What are unregistered securities or stocks?

    Before securities, like stocks, bonds and notes, can be offered for sale to the public, they first must be registered with ... Read Full Answer >>
  4. How does FINRA differ from the SEC?

    With all the financial organizations out there, knowing what they all do can be as complicated as knowing where to invest. ... Read Full Answer >>
  5. Are there regulations against monopolies?

    A monopoly occurs when a single company or group owns all or nearly all of the market for a particular type of product or ... Read Full Answer >>
  6. What is the Dodd-Frank Act? How does it affect me?

    The Dodd-Frank Wall Street Reform and Consumer Protection Act is a massive piece of financial reform legislation passed by ... Read Full Answer >>
Related Articles
  1. Economics

    What is a Resident Alien?

    A resident alien is a foreigner who is a permanent resident of the country in which he or she resides but does not have citizenship.
  2. Entrepreneurship

    Employment Negotiations: What To Ask For & How

    Improving their first offer: What you should know
  3. Entrepreneurship

    How To Talk To Headhunters

    8 tips on forging a fruitful relationship with an executive recruiter.
  4. Investing

    Should Amtrak Be Privatized?

    This story examines whether or not Amtrak, the US consumer rail system, should be privatized in the wake of its tragic accident.
  5. Personal Finance

    The Purpose Of a FMLA Form

    Parsing the different types of paperwork that accompany a leave of absence under the Family Medical Leave Act.
  6. Personal Finance

    8 Ways To Seriously Blow It With A Headhunter

    Job hunters, beware. These are the 8 things that blow your chances with headhunters. So pay attention to your behavior when you're being interviewed.
  7. Fundamental Analysis

    The Business Model Of Private Prisons

    How does the business model of private prisons work?
  8. Personal Finance

    Why Is It Easier To Find A Job While Employed?

    It's ironic that having a job helps you find a new one. Here's what you should and shouldn't do in your job search.
  9. Entrepreneurship

    7 Ways To Make Executive Recruiters Notice You

    Yes, you can go after executive recruiters – but take a sophisticated approach. Here's how.
  10. Entrepreneurship

    The Job Hunter's Guide To Headhunters

    Corporations often turn to these outside consultants to fill their executive vacancies. Here's what you need to know about how they work.

You May Also Like

Hot Definitions
  1. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  2. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  3. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  5. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  6. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!