Back-to-back loan (also usually in German; more rarely parallel loan, currency counter-loan and [unattractive] currency exchange loan)

A company in one currency area grants a loan to a company in another currency area in its, i.e. the lender’s, currency, assumed to be CHF. In return, the lending company receives a corresponding amount in the currency of the borrower, assumed USD. After a contractually agreed time, the mutual claims are settled in the respective currency (a loan in which two companies in separate currency areas borrow each other’s currency for a definite time period, and repay the other’s currency at an agreed-upon maturity). Such transactions are particularly common between companies operating internationally and linked by trade relations. In this way of mutual lending, companies can acquire foreign currency relatively safely and without the costly interposition of banks. The loans also serve to eliminate exchange rate risks. – See settlement risk, Herstatt risk, exchange rate hedging, swap, currency-related, currency option.

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
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