Parallel loans are particularly attractive when an MNC is conducting a project in a foreign country, will receive cash flows in the foreign currency, and is concerned that the foreign currency will depreciate substantially.

Question

Quizplus · Accepted Answer

Parallel loans involve borrowing in one currency and lending in another currency. They are useful in situations where an MNC is exposed to exchange rate risk and wants to protect itself against potential currency fluctuations. If the MNC is conducting a project in a foreign country and will receive cash flows in the foreign currency, it may be concerned that the foreign currency will depreciate substantially and erode the value of its cash flows. In this case, it could enter into parallel loans to effectively hedge its exposure to exchange rate risk.

Parallel Loans Are Particularly Attractive When an MNC Is Conducting