6th LPGB Banking Professional Exam: Understanding Terminology
Impressed Stamp Versus Embossed Stamp
- Impressed Stamps are those that are impressed by the collector or an appropriate authority. Impressed stamps are used in banks mainly on Charge documents, Letter of Lien, Letter of Hypothecation, Letter of Pledge, Letter of Continuity, Letter of Guarantee, and Letter of Trust receipt, etc., whereas
- Embossed Stamps are generally used by the Notary Public, CCI&E, & other Govt., Semi-Govt. Authority through pressing the machine on the document.
Guarantee vs Indemnity
- Number of parties: In case of guarantee, there are three parties- the principal debtor, the creditor, and the surety. A contract of guarantee requires the concurrence of the three parties. Whereas, in the case of indemnity, there are only two parties- the indemnified and the indemnifier.
- Number of contracts: In case of a guarantee, there are two contracts, one between the principal debtor and the creditor, and the second between the surety and the creditor. On the other hand, in a contract of indemnity, there is only one contract between the indemnifier and the beneficiary.
- Request: In a contract of guarantee, the guarantor undertakes his obligation at the request, express or implied, of the principal debtor; no such request is necessary in respect of an indemnity.
- Nature of liability: In a contract of guarantee, the liability of the principal debtor is primary, and that of the surety is secondary. The person giving an indemnity is primarily and independently liable.
- Purpose of contracts: A contract of guarantee is to provide necessary security to the creditor against the loan, but a contract of indemnity is made for reimbursement of loss.
- Right of parties: The surety has the right to recover from the principal debtor the amount paid by him under the contract of guarantee; the indemnifier cannot claim reimbursement from anybody else.
- Nature of risk: The surety agrees to discharge the existing liability of the principal debtor. So, it is a subsisting risk. The indemnifier promises to save the indemnified against the risk of loss happening in the future. So, it is a contingent risk.
Nostro Account vs Vostro Account
Nostro and Vostro accounts are used in the cases of International Banking. These accounts are used to facilitate foreign currency transactions and international trade settlements in different countries.
- A Nostro account is an account that a bank opens in a foreign bank in foreign currency.
- For example, if a Bangladesh Development Bank PLC opens an account in a Malaysian bank in US dollars, that USD account is called a Nostro account for Bangladesh Development Bank PLC.
- Nostro Account is mainly used for: a) Settle international trade-related payments, b) Sending Student Tuition Fee and other costs to overseas countries, c) Paying Import Bills/ LC Payment, d) Receiving Currency from Export, e) Receiving Foreign Wage and Non-wage Earners Remittances
On the other hand,
- A Vostro account is opened in a domestic bank by a foreign bank in domestic currency.
- For example, if a Malaysian Bank opens an Account with Sonali Bank PLC in Bangladeshi Taka, then it is called a Vostro Account.
- Vostro Account is mainly used to: a) Hold foreign banks’ funds, b) Facilitate international settlements, c) Support correspondent banking relationships
