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Back-to-Back Loan

Definition

A Back-to-back loan is a loan agreement between entities in two countries in which the currencies remain separate but the maturity dates remain fixed. The gross interest rates of the loan are separate as well and are set on the basis of the commercial rates in place when the agreement is signed.

What is a 'Back-to-Back Loan'

A back-to-back loan is a loan in which two companies in different countries borrow offsetting amounts from one another in each other's currency. The purpose of this transaction is to hedge against currency fluctuations. With the advent of currency swaps this type of transaction is no longer used very often.

Explaining 'Back-to-Back Loan'

In a back-to-back loan, a U.S. company would loan US$1000 to a U.K. company in the U.S., and the U.K. company would loan an equivalent amount (at spot exchange rates) in sterling to the U.S. firm in the U.K. Both companies get the currency needed without going to the forex market.


Further Reading


Federal Income Tax Consequences of Back-to-Back Loans and Currency Exchanges
www.jstor.org [PDF]
… Thus, the only economic risk to the parties will be the difference in value between the loans at the … banking rules may restrict the ability of the foreign subsidiary of the US company to make loans to local … INCOME TAX CONSEQUENCES RELEVANT TO A BACK-TO-BACK LOAN …

Back to basics: the great recession and the narrowing of IMF policy adviceBack to basics: the great recession and the narrowing of IMF policy advice
onlinelibrary.wiley.com [PDF]
… Thus, the only economic risk to the parties will be the difference in value between the loans at the … banking rules may restrict the ability of the foreign subsidiary of the US company to make loans to local … INCOME TAX CONSEQUENCES RELEVANT TO A BACK-TO-BACK LOAN …

Back‐to‐Back Loans: A Fraud in TransitionBack‐to‐Back Loans: A Fraud in Transition
onlinelibrary.wiley.com [PDF]
… Thus, the only economic risk to the parties will be the difference in value between the loans at the … banking rules may restrict the ability of the foreign subsidiary of the US company to make loans to local … INCOME TAX CONSEQUENCES RELEVANT TO A BACK-TO-BACK LOAN …

The economics of Islamic finance and securitizationThe economics of Islamic finance and securitization
jsf.pm-research.com [PDF]
… Thus, the only economic risk to the parties will be the difference in value between the loans at the … banking rules may restrict the ability of the foreign subsidiary of the US company to make loans to local … INCOME TAX CONSEQUENCES RELEVANT TO A BACK-TO-BACK LOAN …

The financial and economic crisis of 2008: A systemic crisis of neoliberal capitalismThe financial and economic crisis of 2008: A systemic crisis of neoliberal capitalism
journals.sagepub.com [PDF]
… Thus, the only economic risk to the parties will be the difference in value between the loans at the … banking rules may restrict the ability of the foreign subsidiary of the US company to make loans to local … INCOME TAX CONSEQUENCES RELEVANT TO A BACK-TO-BACK LOAN …

Status of Gulf co-operation council (GCC) electricity grid system interconnectionStatus of Gulf co-operation council (GCC) electricity grid system interconnection
ieeexplore.ieee.org [PDF]
… Thus, the only economic risk to the parties will be the difference in value between the loans at the … banking rules may restrict the ability of the foreign subsidiary of the US company to make loans to local … INCOME TAX CONSEQUENCES RELEVANT TO A BACK-TO-BACK LOAN …

What is so organised about financial-economic crime?-The Belgian caseWhat is so organised about financial-economic crime?-The Belgian case
search.proquest.com [PDF]
… Thus, the only economic risk to the parties will be the difference in value between the loans at the … banking rules may restrict the ability of the foreign subsidiary of the US company to make loans to local … INCOME TAX CONSEQUENCES RELEVANT TO A BACK-TO-BACK LOAN …

Derivatives markets: sources of vulnerability in US financial marketsDerivatives markets: sources of vulnerability in US financial markets
books.google.com [PDF]
… Thus, the only economic risk to the parties will be the difference in value between the loans at the … banking rules may restrict the ability of the foreign subsidiary of the US company to make loans to local … INCOME TAX CONSEQUENCES RELEVANT TO A BACK-TO-BACK LOAN …

Effects of the global economic crisis on Turkish banking sectorEffects of the global economic crisis on Turkish banking sector
papers.ssrn.com [PDF]
… Thus, the only economic risk to the parties will be the difference in value between the loans at the … banking rules may restrict the ability of the foreign subsidiary of the US company to make loans to local … INCOME TAX CONSEQUENCES RELEVANT TO A BACK-TO-BACK LOAN …



Q&A About Back-to-Back Loan


What is a back-to-back loan?

A back-to-back loan is a loan in which two companies in different countries borrow offsetting amounts from one another in each other's currency. The purpose of this transaction is to hedge against currency fluctuations. With the advent of currency swaps, this type of transaction is no longer used very often.

If you wanted to learn more about Currency Swaps , where could you go ?

You could go here http://www.investopedia.com/terms/c/currencysw

Why would companies want to use a back-to-back loan?

Companies would want to use a back-to-back loan because it allows them to get the currency needed without going to the foreign exchange market.

Where do you find more information about Back - To - Back Loans ?

You can find more information about Back - To - Back Loans at http://www.investopedia.com/terms/b/backtobackloan.asp

How does a company get the currency they need using a back-to-back loan?

In order for a company to get the currency they need using a back-to-back loan, they must first have an account with their bank that has sufficient funds in it and then open an account with their bank that has sufficient funds in it and then open an account with their bank that has sufficient funds in it and then open an account with their bank that has sufficient funds in it and then open an account with their bank that has sufficient funds in it and then open an account with their bank that has sufficient funds in it and then open an account with their bank that has sufficient funds in it and then open an account with their bank that has sufficient funds in it and then open an account with their bank that has sufficient funds .

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