Parallel Loan Agreement Definition
The main advantage of a parallel loan is that it reduces the foreign exchange or exchange risk to which companies may be exposed when borrowing in different countries. When companies enter into a parallel loan agreement, it is also a mutually beneficial agreement, which reduces borrowing costs and interest rates for both companies. financial-dictionary.thefreedictionary.com/parallel+loan In response to the reluctance of international commercial banks to provide cross-border loans from emerging countries in fiscal 2009, IFC began to arrange parallel loans to international financial institutions and other eligible B borrowers. The parallel credit market was created to avoid restrictions imposed by the Bank of England on the free movement of sterling. Most British companies wishing to invest abroad must exchange books in US dollars at an exchange rate above the market exchange rate. The motivation behind this strategy was to ensure the value of the pound under other currencies. However, companies were not interested in providing financial assistance to the Bank of England by setting the aforementioned market price for every dollar obtained from the exchange rate instituted by the policy. The prevention of this monetary control leads directly to the improvement of the currency exchange market.  [Page required] To understand what a parallel loan contract is, you need an understanding of the legal context that led them. Not only has the parallel lending evolved to circumvent exchange control rules, but it also allows companies to borrow funds in foreign currencies at rates lower than they could obtain on the foreign exchange market, such as foreign companies. In this situation, the parallel loan brings certain advantages and disadvantages to businesses.
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. AbC would then lend the Canadian funds to the Canadian subsidiary of XYZ and XYZ would lend the euros to ABC`s French subsidiary. The first parallel loans were made in the United Kingdom in the 1970s in order to avoid the taxes put in place to increase the price of foreign investment. This practical note examines parallel lending agreements in the PFI and PF2 projects. It takes into account the context of such agreements (arising from the Construction Assistance, Construction and Recovery Act 1996) and the purpose and content of the parallel loan agreement itself. Nearly six years later, IFI financing continues to play a very important role in IFC`s syndicated lending program, with the introduction of Basel III significantly reducing the availability of long-term financing and the risk-taking of commercial banks. There are now 26 MCA signatures (see chart below). Since the inception of the MCA in 2009, MCA signatories have provided more than $3 billion in parallel loans to clients. [Important: by borrowing money from each party in its original currency, a parallel loan attempts to avoid currency risks – a negative change in exchange rates between two currencies.] A kind of foreign currency loan contract that was a precursor to currency swaps. A parallel loan consists of two parent companies that take out loans from their respective national financial institutions and then lend the resulting funds to the subsidiary of the other.