What is a Hard Loan?

A hard loan is a loan between a lender and borrower in different countries that is denominated in a hard currency.

How Does a Hard Loan Work?

For example, a hard loan from a lender in Cambodia to a borrower in Thailand may be denominated in U.K. pounds sterling because it is a stronger and more stable currency than either of the other countries' currencies.

Why Does a Hard Loan Matter?

Although a hard loan is exposed to exchange-rate risk, a hard loan substantially reduces the risk that would exist if the loan were denominated in either of the less-stable local currencies.