Back-to-Back Loan Definition - What is a Back-to-Back Loan?

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What is a Back-to-back Loan? Let us take a deeper look at back-to-back loans - how to use them and associated risks.

In this type of loan, both parties borrow the offsetting amounts from one another in the other party's currency.

By borrowing offsetting amounts to be paid at the same maturity date, both companies are able to deal in the other currency without having to go through the lengthy process of dealing in the Forex market.With the back-to-back loan explained above, you can infer that the purpose of using a back-to-back loan is to have a safe and quick way to deal with foreign currency. It acts as a hedge against currency risk while offering more credit.

This amounts to 12,94,170 Japanese Yen. The Japanese company gives 12,94,170 Japanese Yen to the American company. The amount is given in Japanese Yen. It is a good option for you if you can find a party in the country of interest that has similar investing goals as you. Make sure to cover contingencies in the contract that protect you against the default risk.While there is no explicit limit on back-to-back loans, they usually become due in around 10 years as a result of inherent risks they carry.

 

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