Question

A loan in which a parent deposits money with a host-country bank, which then lends the money to a subsidiary located in the host country is known as a(n) ________.

Answer 1

A loan in which a parent deposits money with a host-country bank, which then lends the money to a subsidiary located in the host country is known as a back-to-back loan.

What is a back-to-back loan?

A back-to-back loan is a deal in which two parent corporations from separate nations borrow equal sums of money in their home currencies and lend it to the local subsidiary of the other.

While businesses could trade money on the currency markets, back-to-back loans can be more practical and provide the necessary currency. However, back-to-back loans have mainly been replaced by currency swaps and other comparable instruments. Nevertheless, these tools support global trade.

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