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Definition: Parallel Loan
Parallel loan is a mutually beneficial loan agreement between two companies or individuals living in different countries for a specific time period, which enables them to overcome any foreign currency fluctuation risk in the future. Parallel loans involve companies giving each other's domestic currency as a loan to each other.
It is also known as an agreement between two parties where they borrow money from their respective financial institutions and send it to each other’s subsidiaries. They are also referred as back to back loans since both the parties are giving a loan to each other.
These were the precursor to currency swaps.
Importance of Parallel loans
Parallel loans are much more convenient than trading currency in the currency markets and promote international trade.