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What is the difference between Bank Guarantee and Letter of Credit?

Letters of Credit ensure that a transaction goes ahead, whereas a Bank Guarantee reduces any loss incurred if the transaction does not go to plan. Merchants involved in the exports and imports of goods will choose Letters of Credit to ensure delivery and payments. In contrast, Contractors bidding for infrastructure projects will prove their financial credibility through Bank Guarantees. Moreover, unlike Letter of Credit, Bank Guarantees protect both parties involved.