A:

A bank guarantee is a promise from a bank or lending institution that, if a borrower defaults on repayment of a loan, the bank will cover the loss. A bond is a debt instrument in which an investor loans money to a corporation or government institution in return for some amount of interest earned over the life of the bond. So, while a bond is essentially a loan issued by an entity and invested in by outside investors, a bank guarantee is a promise that can be included in a bank loan.

Bonds are used by corporations, governments or municipalities to raise money and finance needed projects. An entity issues a bond at a par value, usually in denominations of $100, with a stated coupon rate around 5%. An investor effectively lends the bond for $100 and receives coupon payments from the corporation, government or municipality issuing the bond until the $100 par value is repaid by the entity that borrowed the money.

A bank guarantee, on the other hand, is not a debt instrument or a loan in itself. It's a guarantee by a lending institution that if a borrower defaults on its liabilities or obligations, the bank will cover the costs. A bank guarantee is a provision that can be placed in a bank loan prior to the bank loaning out the money. A bank guarantee encourages companies and private consumers to make purchases they otherwise would not make, which increases business activity and consumption, and gives people entrepreneurial opportunities.

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