On Financial Standby

As a substitute for the bank guarantee/bond and an instrument of both payment and security, Standby Letter of Credit (Standby) has been widely used in the international business. Yet in our country, it has not been completely understood, especially for the Financial Standby (FS). It is shown on the websites of the major Chinese banks FS is one of the services that the banks are offering to their customers. The gap between the understanding and the need, together with my academic experience of the related topic, makes me work on this thesis.Apart from the Introduction and Conclusion, this paper is divided into four chapters:Chapter One mainly focuses on the general law about Letter of Credit (Credit) and Standby, which includes the concept, the classification, the two basic principles, namely the Principle of Independence and the Principle of Strict Compliance, the Fraud Rule/Exception, and the development and sources of law. Since FS belongs to both Credit and Standby, the aspects discussed in this chapter apply to FS as well. Chapter Two is a concrete analysis of the types and features of FS, which includes a normal financial standby and a direct pay standby. These two types are different from each other in the payment terms. Features of FS are discussed and stressed in an American case, in which FS is compared with two other Credits, the Commercial Credit and the Commercial Standby.The topic of Chapter Three is the financial standby in projects funded by municipal bonds. The process and advantages of FS are described in a new case, and other situations where FS could be used are briefly stated.In order to remind people of the importance and deepen the understanding of FS, Chapter Four explains how the FS is issued to support a domestic loan and a foreign loan in Chinese banking practice.