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Parallel Loan

Definition

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.


Further Reading


Innovation in the international financial markets
link.springer.com [PDF]
… School of Busi- ness and Senior International Economist at the Claremont Economics Institute … of a British company, while the British firm simultane- ously makes a sterling loan to the … Such dollar/sterling parallel loans are concluded at an interest rate differential reflect- ing the …

The AURORA financial management system: Model and parallel implementation designThe AURORA financial management system: Model and parallel implementation design
link.springer.com [PDF]
… School of Busi- ness and Senior International Economist at the Claremont Economics Institute … of a British company, while the British firm simultane- ously makes a sterling loan to the … Such dollar/sterling parallel loans are concluded at an interest rate differential reflect- ing the …

The parallel banking systemThe parallel banking system
books.google.com [PDF]
… School of Busi- ness and Senior International Economist at the Claremont Economics Institute … of a British company, while the British firm simultane- ously makes a sterling loan to the … Such dollar/sterling parallel loans are concluded at an interest rate differential reflect- ing the …

Living parallel lives: Italy and Greece in an age of austerityLiving parallel lives: Italy and Greece in an age of austerity
www.tandfonline.com [PDF]
… School of Busi- ness and Senior International Economist at the Claremont Economics Institute … of a British company, while the British firm simultane- ously makes a sterling loan to the … Such dollar/sterling parallel loans are concluded at an interest rate differential reflect- ing the …

Monetary policy transmission in China: A DSGE model with parallel shadow banking and interest rate controlMonetary policy transmission in China: A DSGE model with parallel shadow banking and interest rate control
papers.ssrn.com [PDF]
… School of Busi- ness and Senior International Economist at the Claremont Economics Institute … of a British company, while the British firm simultane- ously makes a sterling loan to the … Such dollar/sterling parallel loans are concluded at an interest rate differential reflect- ing the …

The birth of the swapThe birth of the swap
www.tandfonline.com [PDF]
… School of Busi- ness and Senior International Economist at the Claremont Economics Institute … of a British company, while the British firm simultane- ously makes a sterling loan to the … Such dollar/sterling parallel loans are concluded at an interest rate differential reflect- ing the …

Macro-financial linkages in Egypt: A panel analysis of economic shocks and loan portfolio qualityMacro-financial linkages in Egypt: A panel analysis of economic shocks and loan portfolio quality
www.sciencedirect.com [PDF]
… School of Busi- ness and Senior International Economist at the Claremont Economics Institute … of a British company, while the British firm simultane- ously makes a sterling loan to the … Such dollar/sterling parallel loans are concluded at an interest rate differential reflect- ing the …

An economic theory of a credit unionAn economic theory of a credit union
www.jstor.org [PDF]
… School of Busi- ness and Senior International Economist at the Claremont Economics Institute … of a British company, while the British firm simultane- ously makes a sterling loan to the … Such dollar/sterling parallel loans are concluded at an interest rate differential reflect- ing the …

Large debt financing: syndicated loans versus corporate bondsLarge debt financing: syndicated loans versus corporate bonds
www.tandfonline.com [PDF]
… School of Busi- ness and Senior International Economist at the Claremont Economics Institute … of a British company, while the British firm simultane- ously makes a sterling loan to the … Such dollar/sterling parallel loans are concluded at an interest rate differential reflect- ing the …

Global retail lending in the aftermath of the US financial crisis: Distinguishing between supply and demand effectsGlobal retail lending in the aftermath of the US financial crisis: Distinguishing between supply and demand effects
www.sciencedirect.com [PDF]
… School of Busi- ness and Senior International Economist at the Claremont Economics Institute … of a British company, while the British firm simultane- ously makes a sterling loan to the … Such dollar/sterling parallel loans are concluded at an interest rate differential reflect- ing the …



Q&A About Parallel Loan


Which countries were first to use Parallel Loans?

The United Kingdom implemented parallel loans in order to bypass taxes imposed on foreign investments.

What is an early form of currency swap?

Parallel loan is an early form of currency swap.

How does the Parallel Loan work?

The parent companies take loans from their respective national financial institutions and then lend the resulting funds to each other's subsidiaries.

Who has a relative advantage in cost of funds?

One company has a relative advantage in cost of funds than another company which leads to borrowing those funds at lower rates.

Who are the parties involved in this transaction?

Two parent companies, ABC and XYZ, are involved in this transaction.

What does a parallel loan consist of?

A parallel loan consists of two pairs of affiliated companies and two pairs parents companies in two different countries.

What is a Parallel Loan?

A parallel loan is a type of foreign exchange loan agreement that was a precursor to currency swaps.

How do the loans get swapped?

The loans are swapped by taking out two loans from local lenders with the aim of swapping the resulting loans in different currencies.

Why did parallel loans occur between four parties?

Parallel loans occurred between four parties because it was necessary to have all four parties involved for a successful transaction.