Trading Bank Guarantees
Utilising Bank Guarantees directly into a ‘trading position’ is not possible. However, to utilise a Bank Guarantee to raise credit lines and then enter those funds into a trading position is of course very possible.
To ‘trade’ a Bank Guarantee, meaning to enter it into an investment programme or structured investment product directly is not possible due to the fact that a Bank Guarantee is not cash. It is a demand guarantee designed to offer a guarantee against a loss or condition. It cannot be transferable nor cannot be divisible. Therefore, as a demand guarantee, it has no value to invest.
Having said that, it is possible (depending on the wording and purpose of the Guarantee) to apply to raise a credit line or loan against it. With these borrowed funds, one can invest into trading positions and purchase investment notes and structured products. This form of borrowing can often add comfort to the bank as investments of this type can be designed to liquidate prior to expiry of the Guarantee to repay the credit or loan. Borrowing against Bank Guarantees to invest into structured products and notes where full capital protection is maintained is indeed a sensible opportunity.