There are several types of foreign exchange business

How many types of foreign exchange business are there? Next, let the editor of Legal Savior Network introduce it to you in detail.

There are several types of foreign exchange business

(1) Parallel loan

Parallel loan first appeared in the UK in the 1970s. Its birth was based on evading foreign exchange controls. the goal of. It refers to two parent companies in different countries providing local currency loans of equivalent amounts to the other company's subsidiaries in their own countries, and promising to return the borrowed currency on the set maturity date.

Parallel loans can avoid domestic capital controls and meet the financing needs of both subsidiaries, so they are very popular in foreign markets. However, my country's current foreign exchange management policy prohibits parallel loan business in the country. In addition, parallel loans also have certain credit risk issues. This is because parallel loans contain two independent loan agreements. Both agreements are legally binding. Therefore, in the event of a default by one party, the other party will Nor can the performance obligation be released.

(2) Back-to-back loan

Back-to-back loan is a product born to solve the credit risk in parallel loans. It refers to direct mutual loans between parent companies in two countries. The loan currencies are different and the single currency value is equal. The loan maturity date is the same, each pays interest, and each repays the original borrowing currency upon maturity. Similarly, back-to-back loans involve cross-border lending issues, which raise issues with foreign exchange controls. Moreover, both parallel loans and back-to-back loans are a kind of loan, which reflect the relationship between creditor's rights and debts and will affect the structure of corporate assets and liabilities. Neither method of circumventing exchange controls is commonly used today.

(3) Financial swap

In order to solve the problem that parallel loans and back-to-back loans will affect the asset and liability structure problem, currently financial swaps are the most widely used by the majority of enterprises. A financial swap is a contract in which two or more parties agree to exchange a series of cash flows within an agreed period of time according to agreed conditions. Since the swap is a liability orThe exchange of assets is an off-balance sheet business and therefore will not affect the asset-liability structure.

The two most common financial swaps at present are interest rate swaps and currency swaps. In addition, there are basis point swaps, zero-coupon swaps, forward swaps, etc.

Swap is a good application of comparative advantage theory in the financial field. As long as both parties have demand for the other party's assets or liabilities and both parties have a comparative advantage in the two assets or liabilities, financial swaps can be conducted.

If you have other legal questions, you can consult a lawyer on the Legal Savior Network online.