The TRUTH re Money

[Lord Kangana]

But as I say, in a fixed deal (ie, "you pay us e11m, we give you Elmander") Toulouse wouldn't be taking any risk. If we use your example (and I've no reason not to, I haven't a clue how transfer business is conducted), if they agreed to a fixed rate over a series of payments, I'm sure their own financial advisors (you've gotta hope they have them) would have pointed out that Sterling was on a 2 year inexorable downward slide against the Euro.

Now, at that point I suppose we could hypothesise that the higher figure was arrived at knowing the forward exchange risk. The only spanner in that particular works would be the e15m (or was it 18) they'd been asking for in the January.

[Wandering Willy]

But as I say, in a fixed deal (ie, "you pay us e11m, we give you Elmander") Toulouse wouldn't be taking any risk. If we use your example (and I've no reason not to, I haven't a clue how transfer business is conducted), if they agreed to a fixed rate over a series of payments, I'm sure their own financial advisors (you've gotta hope they have them) would have pointed out that Sterling was on a 2 year inexorable downward slide against the Euro.

Now, at that point I suppose we could hypothesise that the higher figure was arrived at knowing the forward exchange risk. The only spanner in that particular works would be the e15m (or was it 18) they'd been asking for in the January.

They wouldn't do this. It would be a series of rates, one for each payment, that would leave you with no risk to exchange rate fluctuation. They are calculated using the the 2 interest rate yield curves for each currency but it gets a bit boring from here.

[Lord Kangana]

I'm going to need more than that to not completely write off your argument willy.

How can you satisfy both parties on both sides of an exchange of currency, and protect both their positions? I see that as nigh on impossible.

[Wandering Willy]

I'm going to need more than that to not completely write off your argument willy.

How can you satisfy both parties on both sides of an exchange of currency, and protect both their positions? I see that as nigh on impossible.

OK - let's say you agree to buy a player for €200 from a French side, with €100 paid in one year's time and €100 paid in 2 year's time.

Suppose the current forward rates for the € are 1.1 in one year and 1.2 in 2 years.

At today's market rates you have committed to paying £90.91 (100/1.1) in one year and £83.33 (100/1.2) in 2 years.

The French club has no risk as they are getting paid in €.

Your risk is that the exchange rate moves against you when you have to make your payments.

In order to avoid this you enter into an agreement with a bank to pay them £90.91 and £83.33 in years 1 and 2 respectively and in return they will make the €100 payments to the French club. Whichever way the exchange rate moves between now and when your payments are due your amounts are fixed and therefore you have no exchange risk.

Both clubs are protected.

As an aside, the idea that you are paying €200 for the player is not really true. Paying €100 today is more expensive than paying €100 in the future. For example if the yearly interest rate on a € account is 5% then you could simply deposit €95.24 in the bank and in a year you will have €100 after the interest payment with which to pay the fee. This is the concept of net present value and may account for the reason overseas transfers have different fees reported. See J. Elmander.

May I remove the hook now?

[Lord Kangana]

So if the transfer was valued at e11m, and the highest rate of exchange was e1.26/£1, its safe to say at no point did we pay less than £8.73m? Or do banks take the hit for you?

[Wandering Willy]

So if the transfer was valued at e11m, and the highest rate of exchange was e1.26/£1, its safe to say at no point did we pay less than £8.73m? Or do banks take the hit for you?

I don't know whether we hedged this deal and at what rates so I couldn't say what we paid. Unhedged your assumption would be correct.

If Sterling dropped over the life of the deal and we hedged at the outset then the banks would the the hit. (Though in reality they probably hedged themselves ie lay off the bet).

[Lord Kangana]

Sterling dropped dramatically over the life of the deal.

Ok, sorry to keep you an all that, but what cost would we incur for hedging? Would I be right to assume a much worse exchange rate?

[CAPSLOCK]

Will, no

But nor am I over the moon with Coyle

Something inbetween, maybe

Coyle does have time to improve though and I believe he has it in him to do so

[Wandering Willy]

Sterling dropped dramatically over the life of the deal.

Ok, sorry to keep you an all that, but what cost would we incur for hedging? Would I be right to assume a much worse exchange rate?

Cost of hedging is made on a spread basis usually much like when you change money at the bank. The exchange rate mid might be 1.20 but you may quoted something like 1.15/1.25 depending on whether you are buying or selling. A similar spread is applied to forward rates. I don't know what spread BWFC gets from its bankers.

As I said before, if we did not hedge the deal at the outset then you can assume a worse exchange rate due to the drop in sterling.

As DSB pointed out earlier I would be surprised if we didn't take some of the risk out of the deal. If Eddie sells a lot of elements in Europe he would have € cashflows coming in so paying € out may have been a good fit for him and a deal may have been done with BWFC and his company. Pure speculation that bit though.

[BL3]

How do football deals work?

Do you pay everything up front on the first day, or drip feed it over a series of months?

We're paying for Eagles and Mears over the period of the three year contracts apparently.

[Lord Kangana]

I know Burnley feels like a different planet, but I'm not sure we're going to have to hedge our foreign exchange risk on that one.

[Wandering Willy]

[CAPSLOCK]

Not forgetting, in all of this conjecture, that Braaten left when Elmander arrived

So he had a value somewhere in this

We would've been glad to see the back of him

[Worthy4England]

Not forgetting, in all of this conjecture, that Braaten left when Elmander arrived

So he had a value somewhere in this

We would've been glad to see the back of him

But LK is MUCH nearer the TRUTH about money. He's going to summarise it all for us in another 5 pages.

[CAPSLOCK]

Well, when he's done it, gimme a shout and I may come back

[Lord Kangana]

5 pages?

I'll give it you in one post if you want.

1) We've no money.
2) We overpaid for Elmander.

[Worthy4England]

5 pages?

I'll give it you in one post if you want.

1) We've no money.
2) We overpaid for Elmander.

You spent 8 pages getting that far?

I expected something more.

[Lord Kangana]

Its the TRUTH isn't it?

[Worthy4England]

Its the TRUTH isn't it?

That clinches it for me. Sterling work.

[Lord Kangana]

Euros actually.