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| What is Back to Back Loan?
Back to Back Loan it's an agreement between two firms from different countries, they exchange currency with out the usual exchange restrictions. After the time is up the other partner pays back the currency. Originally it was invented for currency fluctuation stability. Now days it's rarely used because currency swaps is more efficient. It still has a purpose in credit enhancement.
For example there are two firms one located in the UK and the other one in Spain. The UK company agrees loaning 10.000 pounds to the company in Spain which in return gives an equivalent amount in euro’s. Both firms get the currency with out going on the exchange market. If the amount of money exchanged is bigger then it's easy to picture how this method can be used to stabilize the currency. | | | | |
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