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Guarantee Letter

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Guarantee letter
A commercial bank's letter assuring payment of the exercise price of a client's put option.
Guarantee Letter
In put options, a guarantee of delivery of securities made by a bank to a brokerage on behalf of the bank's client. When an investor is writing a put option and does not have the cash available to buy the underlying asset if the option is exercised, the brokerage may require a guarantee letter in order to eliminate the risk that the investor will not be able to buy the underlying asset. See also: Cosigner, Letter of guarantee.
guarantee letter
A letter that is issued by a commercial bank guaranteeing that an investor who is writing a put option will pay the required sum in the event that the put is exercised against the investor.
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