Risks Associated with Foreign Currency Loans

While yen-denominated loans present attractive conditions, they come with inherent risks related to currency fluctuations. An example illustrating this danger includes the historical Australian loans denominated in Swiss francs, where borrowers faced escalating repayment costs due to unfavorable shifts in exchange rates. If the yen were to appreciate against the rupee, Indian borrowers might find themselves in a precarious position, as the amount owed would increase sharply in rupee terms despite the initially lower interest rates. This highlights the necessity for both the government and businesses to carefully assess the potential impacts of currency volatility when opting for foreign currency loans.