Legal Definitions - back-to-back loan

A back-to-back loan is a type of loan arrangement where two companies lend each other funds in different currencies for a specific period. This type of loan is also known as a parallel loan.

For example, Company A in the United States needs funds in Japanese yen, while Company B in Japan needs funds in US dollars. They can enter into a back-to-back loan agreement where Company A lends US dollars to Company B, and Company B lends Japanese yen to Company A. This way, both companies can obtain the currency they need without having to go through the foreign exchange market.

Back-to-back loans are commonly used by multinational corporations to manage their currency risks and avoid exchange rate fluctuations.