Back-to-back loan - Definition

A loan in which two companies in separate countries borrow each other's currency for a specific period of time and repay the other's currency at an agreed-upon Maturity.

There is no net Capital output because the companies are borrowing the same Amount, only in different currencies. This used to be a common way to hedge against currency fluctuations, though currency swaps have largely replaced them.

For example, there are two firms one located in Canada and the other one in Spain. The Canadian company agrees loaning 20,000 Canadian dollars to the company in Spain which in return gives an equivalent amount in Euro's. Both firms get the currency without going in the exchange market. If the amount of money traded is bigger then it's easy to picture how this method can be used to stabilize the currency.

Terms near "Back-to-back loan"

Backdoor listing
Backup withholding
Backward integration
Bad debt
Bad debt reserve
Balance of payments
Balance of Trade
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