In a parallel loan arrangement:

Question

Quizplus · Accepted Answer

In a parallel loan arrangement, the parent firms lend to each other's affiliates in their respective currencies. Therefore, the Canadian parent firm lends dollars to the Dutch affiliate while the Dutch parent lends euros to the Canadian affiliate. This minimizes foreign exchange risk for both parties as the loans are in the currencies in which the affiliates operate. Choice A is incorrect because the currencies are lent in the wrong direction. Choice C is incorrect because the Canadian parent cannot lend euros as it operates in dollars. Choice D is also incorrect as the parent firms do not lend funds to each other directly.

In a Parallel Loan Arrangement