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Simple English definitions for legal terms
back-to-back loan
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A quick definition of back-to-back loan:
A back-to-back loan is when two companies lend each other money in different currencies for a set amount of time. It's like borrowing a toy from a friend and lending them a different toy in return.A more thorough explanation:
A back-to-back loan is a type of loan arrangement where two companies lend each other funds in different currencies for a specific period. This type of loan is also known as a parallel loan.
For example, Company A in the United States needs funds in Japanese yen, while Company B in Japan needs funds in US dollars. They can enter into a back-to-back loan agreement where Company A lends US dollars to Company B, and Company B lends Japanese yen to Company A. This way, both companies can obtain the currency they need without having to go through the foreign exchange market.
Back-to-back loans are commonly used by multinational corporations to manage their currency risks and avoid exchange rate fluctuations.