The leads and lags in an international finance refer to delaying or expediting receipts or payments in foreign exchange because of expected change in exchange rates. An expected change in rate of foreign exchange can be a cause of gain or loss in an international trade. Thus the settlements of payments is delayed or expedited in an attempt to maximize the gain or minimize the loss. In leads and lags, leads refer to premature payments of goods and services purchased, while lags refer to delayed payments.
An in international finance, an expected change in rate of foreign exchange cause gain or loss. For example, we suppose that US dollar to euro exchange rate is 1.00 (€1.00 buys one dollar). We suppose that, US trader imports goods for €2000 from European exporter and US importer will pay money one month later to European exporter. If one month later, US dollar to euro exchange rate is 2.00, then the US importer must prepare himself to pay €2000 with $4000 in foreign exchange market for payment. On the other hand if exchange rate for euro to US dollar is 0.50 after one month, the US importer have to pay €2000 with 1000$ for payment.
If decline is expected in rate of foreign exchange, the buyers of products may make payments ahead to minimize the loss. If there is rise is expected in foreign exchange rate, the importer may delay the payments, because such delay in payments may make the goods less costly. This practice is made to make some gain from purchasing.