Why does an importer need to obtain a bank guarantee, why don they just borrow the money locally?
In many emerging markets, companies and banks alike may have significant difficulty in borrowing medium term fixed rate money. As a result, even if the importer could obtain a fixed rate medium term loan, the interest rate is likely to be prohibitively high. The local bank, because of its relationship with the importer plays a key role by issuing a guarantee, thereby allowing its customer to access foreign sources of funding.
