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Which statement is the best starting point?
What is a Banking Instrument?
Simple concepts first. Proper banking terminology second.
Start with the purpose
A banking instrument is a document, undertaking or payment mechanism used to move money, support an obligation, manage risk or evidence a promise to pay. The exact legal effect depends on the instrument and its terms.
Four simple jobs
Some instruments mainly help make payment. Some support payment or performance if something goes wrong. Some order or promise payment. Some help banks and businesses finance a transaction.
Do not organise everything by MT number
An instrument and a SWIFT message are different concepts. For example, a documentary credit is the instrument; MT700 is a SWIFT message commonly used to issue it. An SBLC or demand guarantee may be issued using MT760.
Underlying transaction vs bank instrument
The sales contract, loan, construction contract or other commercial deal is the underlying relationship. A bank instrument may support that relationship, but the two should not be treated as the same document.
The MyGreed method
For every instrument, ask: What is it? Who is involved? How is it issued? What must happen for payment? What rules apply? What can go wrong? Can it be financed?
Remember thisInstrument = the financial/legal mechanism. SWIFT message = one way banks communicate it.
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