What is a base currency in a loan facility?

It is the currency in which the facility's limit is stated and in which all drawings are measured. Draws in other currencies are converted into the base currency at an agreed rate to test whether the borrower is within its limit. Commitments, fees and some reporting are expressed in it too. It is usually, but not necessarily, the currency in which the borrower reports.

What happens if exchange rates push a facility over its limit?

Many agreements require the borrower to repay enough to bring utilisation back within the limit, sometimes only after the excess passes a stated tolerance, or at the next rollover. A borrower can be asked for cash even though its foreign receipts have risen in value by the same amount. That is why a business drawing heavily in a foreign currency keeps some headroom beneath its limit.

Is it cheaper to borrow in a currency with lower interest rates?

Only until the currency moves. The lower rate on a currency that the business does not earn is paid for by taking the risk that the currency strengthens. Hedging that risk with forward contracts generally brings the cost back close to the rate in the home currency, because forward rates reflect the interest difference. A lower rate is a saving only where the business has matching income in that currency.

What is the difference between a multi-currency facility and a foreign currency account?

An account holds the business's own money in a currency, while a multi-currency facility lends it. Exporters often use both: receipts arrive in the currency account and are used to repay the matching draw, avoiding two conversions. A currency account gives no credit by itself, and a facility gives no place to hold surplus receipts, so the bank arranges them to work together.

// WORKED EXAMPLETHE ARITHMETIC A DECISION RESTS ON

Multi-Currency Facility: a Worked Example

One limit, several currencies, and a rate that keeps moving.

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-09 · 5 MIN READ

// THE SHORT ANSWER

Under a multi-currency facility a borrower holds one limit and may draw it in several currencies, with each draw measured back to a base currency. What interests a lender is which currency is being drawn against which cash flow. Borrowing in the currency the business earns offsets part of its exposure; borrowing in whichever currency has the lowest interest rate can add a new one. And because foreign draws are revalued, a rate move can use up the limit and lift reported debt even though nobody has borrowed another dollar.

BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// MAKE THE CALL

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PART OF Corporate Lending and Credit Risk

// 01 — WHY A LENDER CARES WHICH CURRENCY

To a borrower the attraction is convenience: one set of documents, one limit, and the freedom to fund euro invoices in euros and dollar costs in dollars. To a lender the same freedom is a question about the exposure. A loan in the currency of the business's receipts is repaid by those receipts and moves in step with them, which makes it a natural hedge. A loan in any other currency is a position, and a working capital line is a poor place to hold one.

So the document a lender asks for is the currency schedule: receipts, costs, existing debt and existing hedges, by currency and by month. A facility can only be matched to an exposure that has been set out.

// 02 — HOW THE FACILITY WORKS

Base currency amount of a draw = foreign amount converted at the agreed spot rate

Utilisation = sum of base currency amounts of all draws

Headroom = limit − utilisation

The moving parts are set in the agreement and vary. The list of permitted currencies is usually short, and may carry sub-limits. Draws are commonly converted at a rate fixed shortly before each drawdown or rollover, so utilisation can move on those dates even if the foreign balance has not. Many agreements require the borrower to repay or reduce any excess if a rate move takes utilisation over the limit, sometimes only beyond a stated tolerance. Each draw is normally priced on a benchmark for its own currency plus the margin, so the all-in rate differs by currency.

In the accounts, debt in a foreign currency is retranslated at the closing rate at each balance date, with the difference generally taken to profit or loss. The rule is in AASB 121 in Australia, its equivalent NZ IAS 21 in New Zealand, and section 30 of FRS 102 in the UK; hedge accounting, where a group applies it, can change where the difference lands.

// 03 — THE EXAMPLE

A maker of marine navigation instruments, constructed for this page like every figure in it, reports in US dollars, invoices European boatbuilders in euros and buys components in yen. It has a US$12.0m multi-currency revolver with EBITDA of US$5.0m. Euro receivables are worth US$5.0m and US$1.2m is owed to yen suppliers. All foreign amounts are shown in their US dollar equivalent, and the levels are the example's alone.

First, the limit. US$6.4m is drawn in dollars and US$5.0m in euros, matched to the euro receivables. The euro then rises 15%, in US$m:

Today Euro +15%

Dollar draws 6.40 6.40

Euro draw 5.00 5.75

Utilisation 11.40 12.15

Limit 12.00 12.00

Headroom / (excess) 0.60 (0.15)

Debt ÷ EBITDA of 5.0 2.28× 2.43×

The hedge has worked: the receivables are up by the same US$0.75m as the debt. But the limit does not know that, so the business must find US$0.15m in cash, and leverage rises by 0.15 of a turn with EBITDA held constant to isolate the effect.

Second, the choice. Treasury notices that yen interest rates are two points lower (the example's assumption) and proposes drawing US$3.0m in yen in place of euros, saving US$60,000 a year. The euro then falls 10% and the yen rises 10%, in US$m:

Change in value Matched Mismatched

Euro receivables (0.50) (0.50)

Euro draw 5.00→4.50 +0.50 2.00→1.80 +0.20

Yen draw none 3.00→3.30 (0.30)

Yen owed to suppliers (0.12) (0.12)

Net effect (0.12) (0.72)

The mismatched version loses US$0.60m more, ten years of the interest it saved, and it does so by adding to a yen exposure the business already had through its suppliers.

// 04 — WHAT IT IS NOT

A multi-currency facility is funding. An FX facility is a separate line that lets a borrower enter forward contracts, and forward cover fixes the rate on future receipts without borrowing anything. The two often sit together, and a lender reads them together: a forward sold against receipts that are also matched by euro debt hedges the same receipts twice, which is over-hedging.

The transaction exposure that a matched draw offsets also differs from translation exposure, which arises when a foreign subsidiary's accounts are converted for consolidation. A borrower may draw foreign currency to offset either, and the question to ask is which one it is meant to address.

DEFINED IN ONE PARAGRAPH → · PRODUCT FILE: FX FACILITY → · NATURAL HEDGE →

// 05 — WHERE IT DECIDES A FILE

Most of the work happens in the structure. A lender may tie a sub-limit to eligible receivables in that currency, restrict drawings to currencies on the schedule, or ask for reporting of the currency mix with each compliance certificate. Leverage covenants also need a position on rates: some agreements convert debt at the average rate used for earnings, so that a currency move does not by itself breach a test, and others use the closing rate.

A borrower who wants the flexibility but will not provide the schedule has given the lender useful information. In Issue 02 an exporter asks for this kind of facility and will not say which currencies it needs, and the drill turns on what to do about that.

HOW BANKS READ EXPORTERS → · HEDGING POLICY → · THE IN-TRAY: CURRENCY AND TRADE →

// SOURCES

The documents the statements on this page rest on. Each was opened and checked when cited.

Australian Accounting Standards Board, AASB 121 The Effects of Changes in Foreign Exchange Rates (compiled, applying from 1 July 2021), the Australian text of IAS 21 — paragraphs 23 and 28 — Requires foreign currency monetary items to be translated at the closing rate and the differences recognised in profit or loss, subject to the stated exception — section 02.
Financial Reporting Council (UK), FRS 102 (September 2024 edition) — paragraphs 30.9 and 30.10 — Sets the same closing-rate treatment for UK entities reporting under FRS 102 — section 02.

// QUESTIONS PEOPLE ASK

What is a base currency in a loan facility?: It is the currency in which the facility's limit is stated and in which all drawings are measured. Draws in other currencies are converted into the base currency at an agreed rate to test whether the borrower is within its limit. Commitments, fees and some reporting are expressed in it too. It is usually, but not necessarily, the currency in which the borrower reports.
What happens if exchange rates push a facility over its limit?: Many agreements require the borrower to repay enough to bring utilisation back within the limit, sometimes only after the excess passes a stated tolerance, or at the next rollover. A borrower can be asked for cash even though its foreign receipts have risen in value by the same amount. That is why a business drawing heavily in a foreign currency keeps some headroom beneath its limit.
Is it cheaper to borrow in a currency with lower interest rates?: Only until the currency moves. The lower rate on a currency that the business does not earn is paid for by taking the risk that the currency strengthens. Hedging that risk with forward contracts generally brings the cost back close to the rate in the home currency, because forward rates reflect the interest difference. A lower rate is a saving only where the business has matching income in that currency.
What is the difference between a multi-currency facility and a foreign currency account?: An account holds the business's own money in a currency, while a multi-currency facility lends it. Exporters often use both: receipts arrive in the currency account and are used to repay the matching draw, avoiding two conversions. A currency account gives no credit by itself, and a facility gives no place to hold surplus receipts, so the bank arranges them to work together.

// NEXT TO IT

// ON WHOSE DESK

The seats that read this term in an ordinary week. Each page says what the seat is for, who arrives in it, and the shape of the round it runs.

Business relationship managerCarries a book of trading businesses — wins them, keeps them, and is the bank's voice when the answer is no.
Credit analystReads a borrower and writes the recommendation a decision-maker will act on.
Lending operations officerTurns an approval into a working facility — documentation, security, drawdown, and the register that says what the bank actually holds.

THE IN-TRAY · ONE MINUTE

Make the call on one file.

A short file on the ground this page covers. Every option opens with how far it sits from a senior banker’s read.

THE NUMBER · THE LOAN · CAPACITY

A US$2m machine is expected to save US$400k of cash a year. The borrower asks for a three-year loan to buy it.

How long does the machine take to pay for itself?

5 MORE ON THE LOAN · CAPACITY →WHERE DO YOU READ FROM? THE PLACEMENT →

THE READING ROOMIN ONE PARAGRAPHMulti-currency facility Why does a lender care which currency a facility is drawn in?