A strategy of shifting funds from weak currency to strong currencies. It calls for adjustments in the collection and payment of intra-MNC (multinational company) account for the purpose of correcting for the appreciation and depreciation of currency, resulting from exchange rate fluctuations. In other words, the payments between the home office of an MNC and subsidiaries may be sped up or slowed down, and the cash may be funneled among the home office and subsidiaries (and among subsidiaries themselves) and among various currencies. Leading and lagging involves the funneling of funds in reaction to changes in the interest rate curve when the stability of the pegged exchange rates is not a concern. The company borrows more in the country with the lower interest rates and lends more in the country with the higher interest rates. When the stability of a pegged exchange rate is questionable, the terms “hedging” and “speculation” are used to refer to similar shifts in the company’s cash position.
This is also known as leads and lags.
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