HELP!!!Foreign Exchange Risk Management

Melchester Rovers is an English Premier League football club. They have signed 3 deals to buy and sell new players in the next transfer window.

They have contracted to buy Killian Mbapp from Paris St Germain (PSG) in France for 150 million euros. This will be paid in stage payments. The first payment is 10 million at the end of March; then 80 million at the end of May; then 25 million when the player completes 25 matches for Melchester Rovers, which is estimated to be at the end of September. The balance is due at the end of December 2021.

The club has also contracted to buy Karim Benzema from Real Madrid in Spain. This deal will require two payments. The first is 35 million at the end of March and 20 million at the end of May 2021. Due to injury concerns with the player, if he has not played 15 matches by the end of May 2021 the second instalment will be only 5 million.

The club has agreed to loan its striker, Blackie Gray, to Beijing Sinobo Guoan in China for the second half of the 2021 season which will run from January 2021 to the end of May 2021. The Chinese club will pay the loan fee in US Dollars. The fee is $30 million and will be paid in two equal instalments. The first will be paid at the end of January 2021. The second instalment will only be paid at the end of May 2021 if the player scores at least 20 goals. If he scores less than 20 goals the second part of the fee will not be paid.

The following are the spot rate and forward points for GBP/USD and EUR/GBP.

You have received the following indicative premiums for a USD put option at a strike price of 1.25: January 2021 3%; May 2021 4%. Each one cent above GBP/USD 1.25 reduces the premium by 25 basis points to a minimum cost of 2%. Each one cent below GBP/USD 1.25 increases the premium by 25 basis points with no maximum.

You have received the following indicative premiums for a EUR call option at a strike price of EUR/GBP 0.9000: end of March 2%; end of May 2.5%; end of September 3%; end of December 2021 3.7%. Each one pence above EUR/GBP 0.8700 reduces the premium by 25 basis points to a minimum cost of 1.5%. Each one pence below EUR/GBP 0.8700 increases the premium by 25 basis points with no maximum.

You have been appointed Treasury Manager of Melchester Rovers. The objective for hedging foreign exchange exposure on player transfers is to achieve the best possible Sterling return. Based on your view of the markets and the objectives of the club, what strategy would you pursue?

Is there anything the club could do to remove or reduce its need to externally hedge foreign exchange exposure on these or subsequent transfers?

HELP!!! HELP!!! Spot 1 month 2 months 3 months 4 months 5 months 6 months 7 months 8 months 9 months 10 months 11 months 12 months EUR/GBP 0.9037/45 5/7 9/13 16/18 20/26 28/31 31/39 38/45 45/48 48/62 57/64 63/71 71/79 EUR/USD 1.2204/10 13/14 21/23 28/33 37/39 44/50 54/60 65/71 74/79 87/95 94/101 102/109 109/119 HELP!!! HELP!!! Spot 1 month 2 months 3 months 4 months 5 months 6 months 7 months 8 months 9 months 10 months 11 months 12 months EUR/GBP 0.9037/45 5/7 9/13 16/18 20/26 28/31 31/39 38/45 45/48 48/62 57/64 63/71 71/79 EUR/USD 1.2204/10 13/14 21/23 28/33 37/39 44/50 54/60 65/71 74/79 87/95 94/101 102/109 109/119