The demand guarantee bridges the "gap of distrust" that exists between the parties. When the bank issues the demand guarantee, the beneficiary deals with a party whose financial strength he can trust and a party which would pay upon first demand regardless of an existing dispute between the parties on the performance of the underlying contract. More importantly, however, the demand guarantee is also used to reallocate the risks between the parties.
The demand guarantee bridges the "trust gap" that exists between the contracting parties. By issuing the guarantee, the bank enables the beneficiary to work with a party whose financial credibility is assured and a party which would pay promptly upon first demand, regardless of any existing disputes over contract performance. Moreover, the demand guarantee plays a crucial role in reallocating the risks between the parties.