What describes the strategy of timing payments early or late based on anticipated currency movements?

The strategy of timing payments early or late based on anticipated currency movements is known as leading and lagging. This approach is utilized by firms to optimize their cash flows and manage exchange rate risk effectively. By adjusting the timing of payments—either accelerating them (leading) or delaying them (lagging)—companies can take advantage of expected changes in currency values. For instance, if a business anticipates that a currency will strengthen, it may choose to make payments sooner (leading) to take advantage of the current exchange rate. Conversely, if a currency is expected to weaken, a company might delay payments (lagging) to avoid incurring higher costs in the future.

In contrast, translation exposure relates to how changes in exchange rates affect the reported financial statements of a company, particularly for its foreign subsidiaries. Economic exposure measures the long-term effect of exchange rate fluctuations on a firm's market value and competitive position, while transaction exposure involves the risk associated with the effect of exchange rate changes on short-term cash flows, specifically regarding already contracted transactions. Thus, none of these alternatives encompass the proactive strategic timing aspect that leading and lagging specifically addresses.