When the borrower applies for a loan in a foreign country, they are supposed to repay the loan in Hard Currency. A hard loan definition refers to the international loan that is supposed to be paid in the foreign currency. In other words, the loan amount has to be repaid in the currency of a country that has a strong Economy and political stability.
Basically, the term hard loan applies to the loans between the borrower and a lender from different nations. Now, the borrower has to repay the loan in hard currency, which is considered as the famous mode of payment across the world. This currency is accepted as a way to make payments for all sorts of transactions.
Now, it is important to note that hard currency doesn’t necessarily have to be the native currency of the borrower or lender. In general, the term is used to describe the currency of a politically stable and strong nation. It also refers to the currency that is accepted by all nations in the world for the international exchange of goods and services.
Now, this leads us to an important question “what does the currency need in order to be considered as hard”? Well, the currency has to be liquid in the Forex. Forex is one of the most popular markets with trillions of bucks being invested and traded every single day. Forex market includes the trading of all currencies used across the world. Secondly, for the currency to be qualified as hard, it must be stable.
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Forex trading executes 24/7. It doesn’t have a centralized system. Currently, the Forex markets of Singapore, London, New York, Sydney, Hong Kong, and Tokyo are considered as the largest and world’s most popular trading markets. Additionally, the hard currency is the one with a high value. For example, the Kuwaiti Dinar happens to be the highest currency worldwide. You will get only 0.30 Kuwaiti Dinar for 1 US dollar. The value of the currency is calculated on the Basis of its current employment rate and the Gross Domestic Product.
The best example of hard currency is the American dollar, which became the first most popular currency in 2018 with the GDP of the country growing to $20.16 trillion. India was on the seventh in terms of the countries with the highest GDPs and China stood second. However, the Indian rupee and Yuan are not considered as hard currencies. The American dollar is widely used for exchanges in foreign countries. This is because America has the highest GDP. The currency rate and GDP are not the only factors that determine the currency value. The central Bank policies as well as the political stability in the country also matter.
Currently, the US dollar is used for more than 70% of international transactions. The currency is accepted in almost all countries. The best example of hard currency is the loan contract signed between a Brazilian and Argentinean corporation, in which, the companies accept the loan repayment in US dollars.