The second route focuses on the operating relationship a subsidiary has with
its parent or with other subsidiaries within the same MNC. In dealing with
exchange rate risks, a subsidiary can rely on intra-MNC accounts. Specifically,
undesirable exchange rate exposures can be corrected to the extent that the subsidiary
can take the following steps:
1. In appreciation-prone countries, collect intra-MNC accounts receivable as
soon as possible, and delay payment of intra-MNC accounts payable as long
as possible.
2. In depreciation-prone countries, collect intra-MNC accounts receivable as
late as possible, and pay intra-MNC accounts payable as soon as possible.
This technique is known as “leading and lagging” or simply as “leads and lags.”