Imported trains currency fluctuations.

[superkev]

With the brexit vote big reduction of the buying power of sterling I wonder who picks up the tab for potentially more expensive imports.
Could be the manufacturer, ROSco or most likely the TOC.
All those CAF trains ordered by northern potentialy cost 10% - 20% more
K

 

[kevconnor]

It depends on the terms of the contract. When the purchase is made a price will be agreed in a particular currency, it is likely to be in the manufacturers home currency, so for CAF this would be in Euro's. As it is the Rosco's that provide the finance for the deal they are likely to hedge their funding to try and offset any predicted rise in prices caused by currency fluctuations.

 

[WatcherZero]

Yes. Its more likely to affect follow on options though which wontbhave been hedged.

 

[Mordac]

Any deal that has already been signed in foreign currency will have been edged with the purchase of options. This is basic finance stuff. Future orders might be affects, but the larger they are, the easier it will be to negotiate payments in sterling rather than a foreign currency.

 

[route:oxford]

Any deal that has already been signed in foreign currency will have been hedged with the purchase of options. This is basic finance stuff. Future orders might be affects, but the larger they are, the easier it will be to negotiate payments in sterling rather than a foreign currency.

Exactly.

There's a handy wee article and video here:-

http://www.investopedia.com/articles/forex/11/why-trade-forex.asp

 

[edwin_m]

Any deal that has already been signed in foreign currency will have been edged with the purchase of options. This is basic finance stuff. Future orders might be affects, but the larger they are, the easier it will be to negotiate payments in sterling rather than a foreign currency.

If I was a rolling stock supplier I'd be very unwilling to accept any sort of deal in sterling, or would at the very least hedge it and add the cost onto the price. While the figures in the last few weeks have been fairly encouraging we are still in the "phony war" on Brexit and things could still get really nasty in the sort of time it takes for a train to be built and paid for.

This applies also to suppliers with plant in the UK. For one thing much of the value of each train is imported, but also because rolling stock is effectively priced in euros wherever built. So they could end up with a loss-making UK order when the same capacity could have been used building something profitable for the Eurozone.

 

[Clarence Yard]

You can get a mix of currencies in your deal as well as just one so, to give one extreme (and fictional) example, it could well be 10% Sterling, 20% Euro, 30% US Dollar and 40% Yen.

Fixing a rate to a particular date is the easy part - hedging a multi-currency multi-hundred million deal is strictly for the experts!

 

[DarloRich]

With the brexit vote big reduction of the buying power of sterling I wonder who picks up the tab for potentially more expensive imports.
Could be the manufacturer, ROSco or most likely the TOC.
All those CAF trains ordered by northern potentialy cost 10% - 20% more
K

existing contracts should have been hedged but any contracts yet to be placed have a potential for higher than expected exchange rate costs.

Obviously you would hedge each contract in turn but rates have changed post vote leave

 

[superkev]

existing contracts should have been hedged but any contracts yet to be placed have a potential for higher than expected exchange rate costs.

Obviously you would hedge each contract in turn but rates have changed post vote leave

Sorry clear as mud.
Does hedging mean insuring against currency fluctuations in which cas the insurer will pick up the tab.
K

 

[Mordac]

Sorry clear as mud.
Does hedging mean insuring against currency fluctuations in which cas the insurer will pick up the tab.
K

Hedging is protection against currency fluctuations, but this is normally done with futures or options, which can be bought in the open market, and which give you the right to purchase the currency at a certain price at a future date.

 

[randyrippley]

With the brexit vote big reduction of the buying power of sterling I wonder who picks up the tab for potentially more expensive imports.
Could be the manufacturer, ROSco or most likely the TOC.
All those CAF trains ordered by northern potentialy cost 10% - 20% more
K

the buying ROSCOs will have hedged the deal against currency variation. Standard practice in deals of this size.