A parallel loan is two loans taken out by two pairs of companies in different countries from local lenders with the aim of swapping the resulting loans in different currencies. It was an early form of currency swap.
What is ‘Parallel Loan’
A type of foreign exchange loan agreement that was a precursor to currency swaps. A parallel loan involves two parent companies taking loans from their respective national financial institutions and then lending the resulting funds to the other company’s subsidiary.
Explaining ‘Parallel Loan’
For example, ABC, a Canadian company, would borrow Canadian dollars from a Canadian bank and XYZ, a French company, would borrow euros from a French bank. Then ABC would lend the Canadian funds to XYZ’s Canadian subsidiary and XYZ would lend the euros to ABC’s French subsidiary.
The first parallel loans were implemented in the 1970s in the United Kingdom in order to bypass taxes that were imposed to make foreign investments more expensive.
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