What's going on?

The summer transfer window for European football (a.k.a. soccer) ended this week and, as usual, English clubs spent a fortune buying European players (�483m in total). However, thanks to a big increase in the value of the British Pound versus the Euro over the past year, ManU and the other English clubs saved a good chunk of money (�75m, i.e. 16%)!

What does this mean?

This is a great example of how foreign exchange (FX) risk can play a really important role in finance - something many people aren�t aware of! Because while it was great for the English clubs, the Europeans who sold the players lost a lot of money. If you�re an American working in London or a German working in New York, you face very similar risks on a personal level. In the past year alone, the American is worse off by 7% and the German is better by 14% as a result of their move.

Why should I care?

1. Even people that work in their home country are often exposed to FX risk by owning foreign investments, like stocks. For example, in Euro terms, European stocks are flat for the past year, but an American who has invested in European stocks is down 14% in US dollar terms. That�s a big difference!�
2. While we can�t usually ask our employers to pay us in a different currency, we can consider how to manage�the FX risk inherent in our investments. That's important�as it can be one of the biggest determinants of returns, especially for people living abroad.