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Please explain if a trigger event which causes a workflow rule to fire and the goes in a loop. or will it terminate after some update?

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This is covered in the documentation on the order of execution.

Salesforce has thought of this, and has put safeguards in place to prevent infinite loops.

If a workflow rule on an object, call it ObjectA, has a field update (also on ObjectA, for sake of ease), it will cause the before update and after update triggers for ObjectA to fire precisely one more time.

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