What are back and back loans?

often referred to as parallel loans, the concept of credit back loans includes two companies found in different countries. As a means of avoiding any factors associated with the risk of changing exchange rates, both companies agree to lend a fixed amount guaranteed at the current exchange rate. As a result, it is unnecessary to make one company details of a loan that would be subject to an increase or decline in the exchange rate between the two countries. By agreeing to borrow a currency apart, the foreign exchange risk is completely removed and both companies benefit from a fixed rate. For example, two companies, one based in the United States and the other in the UK, decide to make a loan arrangement. American society would give the British partner a fixed amount of US currency. The connected company would, in turn, expand the specific amount of British currency for American society, while the exchange rate is based on the current daily exchange rateu. Both companies would agree on the duration of the loan to re -replace the currencies and complete the cycle.

The idea of ​​a parallel loan is nothing new. There are some indications that the arrangement was used in the 18th century, between the United Kingdom and various European countries. Simplicity of exchange of one amount of currency in return for a comparable amount of other currency has helped businesses be competitive outside their own countries.

Since banking systems became more sophisticated in the 19th and early 20th century, their back loans were continued to be in a quick and easy way for two companies in different countries to help each other's growth. Back-to-bottom loans were still popular with the 20th century. However, the implementation of monetary swaps through the foreign exchange system has helped reduce the back of loans on the back. As a result, the loan strategyRu on his back is often not employed in today's international business environment. Nevertheless, in some isolated cases, the concept of credit loans is a viable option, especially if there is fear of a rapid extent of fluctuations with a specific currency. Although the strategy is no longer widespread, there is always a possibility.