If USCO also faced capital export controls (for example, Nixon's \voluntary" and, later, mandatory controls on foreign direct investment), there would be no way to export usd to the uk...

If USCO also faced capital export controls (for example, Nixon's \voluntary" and, later, mandatory controls on foreign direct investment), there would be no way to export usd to the uk counterpart. Suppose that there also was a uk multinational that wanted to lend money to its us subsidiary, if it were not for the cost of the investment dollar premium. The parallel loan solves these companies' joint problem, as shown in Figure 5.9. (The diagram shows the direction of the initial principal

amounts.) USCO lends UKCO dollars in the us, without exporting a dime, while UKCO lends pounds to USCO's subsidiary in the uk (and, therefore, is making no foreign investment either).