DEFINITION of 'Parallel Loan'

A type of foreign exchange loan agreement that was a precursor to currency swaps. A parallel loan involves two parent companies taking loans from their respective national financial institutions and then lending the resulting funds to the other company's subsidiary.

BREAKING DOWN 'Parallel Loan'

For example, ABC, a Canadian company, would borrow Canadian dollars from a Canadian bank and XYZ, a French company, would borrow euros from a French bank. Then ABC would lend the Canadian funds to XYZ's Canadian subsidiary and XYZ would lend the euros to ABC's French subsidiary.

The first parallel loans were implemented in the 1970s in the United Kingdom in order to bypass taxes that were imposed to make foreign investments more expensive.

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