The Art of Financial Warfare
Thud!
Theodora slammed a thick stack of documents onto my desk with a rough hand.
"Hmm?" I looked up at her. Unlike her usual self, she looked to be in an exceptionally foul mood. "Is something wrong?"
At my question, she flashed a bizarre, murderous smile that sent a sudden shiver down my spine.
"No? Nothing is wrong at all."
"I... I see. That's a relief, then."
Avoiding her murderous red gaze, I looked down at the documents and murmured, "The yield is terrible."
I grumbled, looking at the quantity of mana stones required to produce the chemical fertilizer. "The unit cost is far too high. First of all, the next time you meet with the professors, tell them to resolve this issue. There's no point in making fertilizer if it costs its weight in silver."
"Yes."
A heavy silence fell over the room.
"Are you... perhaps angry with me?" I asked cautiously, sensing the ominous atmosphere. But she only shook her head, offering a bright, innocent smile.
"No? Not at all."
I had no idea why such a beautiful smile was making the goosebumps rise on my arms.
"I-I see. That's good, then."
As silence descended once more, I pulled out the market manipulation plan. With less than a month left before the war was set to begin, I needed to conduct a final review to ensure there were no loopholes.
"What is that?" she asked.
"This is..."
Should I tell her? I looked at Theodora, who had only just finished her basic administrative training. Well, it was about time I started teaching her these dirty tricks. I wanted to teach her how to rule the empire with clean hands, but unfortunately, I didn't know the first thing about ruling cleanly.
"Alright, today I'll teach you something new," I said, rising from my seat. "Why don't you sit on the sofa?"
She complied without a word. I handed her the market manipulation plan and said, "Take a look."
She accepted the papers, her eyes trembling as she scanned the first page. "This is...?"
"Keep reading."
As she turned the page, her face instantly drained of color. "A-Are you... planning to start a war with the defected nobles of the Anti-Emperor Faction?"
I nodded. "Yes."
"Why... why would you do such a thing?" she asked, staring at me in disbelief.
"To keep us from falling." I sat down opposite her and continued, "Theodora, what do you think of the current political state of the empire?"
"What does the current political state have to do with this war?" she demanded, gritting her teeth and glaring at me.
"It has everything to do with it. Soon, the empire will be engulfed in a civil war."
The peace treaty I had forged with Yohanes was merely the result of a negotiation to secure political advantages without either side suffering casualties. To achieve this outcome, I had essentially given Yohanes wings by ceding Epirus and Egypt to him.
"How... how do you know that?" she asked, her tone turning calm as she studied me.
"The Emperor Faction and the Anti-Emperor Faction. Do you really think the struggle between these two factions is over? No... it's only just beginning."
At my words, she composed herself remarkably well and asked, "Didn't you sign a peace treaty with Yohanes?"
I nodded. "I did. But why do you think Yohanes—who held the absolute upper hand, who had the support of every noble in the empire except for those in Roman—signed a peace treaty with me?"
Perhaps it was an unexpected question. "I... I don't really know."
I let out a soft chuckle. "It's simple. Yohanes wants to make this empire his own."
"..."
My words seemed to strike her like a physical blow. Theodora stared at me blankly, her body trembling slightly as she bit her lower lip.
"Are you very shocked?"
She shook her head in denial. "No. When he forced me to marry you... I did think that, one day, he might try to drag me down from the throne."
I nodded. "Exactly."
"Then, are you trying to rally the Anti-Emperor Faction again to win that war?"
Clap, clap!
I clapped my hands in genuine admiration. Perhaps it was because she had grown up in the imperial court, but her intuition was incredibly sharp. "That is also correct."
"But what is this market manipulation plan for?"
"It's nothing grand," I replied. "Just a plan to make the money we need to produce the fertilizer."
She gave a small nod and turned to the next page.
Rustle.
After flipping through a few more sheets, she looked up with a curious expression. "Can we really make money using something called a 'put option,' even if the Grand Duchy or the defected Anti-Emperor Faction loses?"
"Yes, absolutely."
Options were a famous financial derivative that had existed on Earth since before the common era. An option refers to the right to buy or sell a specific quantity of a commodity—say, one hundred units—at a predetermined price in the future. The contract is established simply by paying a small premium, equivalent to the price of one unit out of the hundred, as a deposit.
Among these, a 'call option' is the right to buy at the current price in the future, while a 'put option' is the right to sell at the current price in the future.
Normally, options are used by merchant guilds or banks as a hedging tool to mitigate risk. When I discovered that this concept existed here as well, I resolved to put this plan into action.
The reason I was issuing bonds was to secure the funds necessary for the war. The enemy would undoubtedly do the same. Currently, the military strength of my faction and that of the defected Anti-Emperor Faction were neck-and-neck. This meant they were highly likely to issue bonds as well—a fact I intended to exploit for my market manipulation.
If I could decide who won and who lost, what would happen to the bond market?
In truth, the war plan that Agrippa and I had drawn up involved intentionally surrendering key strongholds to make the Anti-Emperor Faction complacent, only to lure them into the territory of the Grand Duchy and wipe them out in one fell swoop. It was the fastest and easiest way to defeat them while they were off-guard.
If it were just my own idea, it might be risky, but since it was based on a strategy proposed by Agrippa—a brilliant general—I was confident of a decisive victory.
Thus, the moment I intentionally engineered a temporary defeat:
A merchant guild operating under a dummy name of mine would sell a massive volume of put options on the Grand Duchy's bonds. Investors who already held Grand Duchy bonds, gripped by the fear that the Grand Duchy might lose the war and render their assets worthless, would buy up these put options like wildfire.
At the same time, we would write and sell a massive amount of call options on the defected Anti-Emperor Faction's bonds. Considering that the defected faction would seem poised to reap massive profits against the Grand Duchy of Francesco, investors would find these call options incredibly lucrative.
To them, I would look like some wealthy fool with more money than sense. They wouldn't even stop to doubt it, because the potential profits right before their eyes would be too massive to ignore. From the perspective of those buying put options, it was literally just a right; if they were wrong, they only lost the small premium they paid. They would feel that if they didn't buy right now, they were missing out.
Using the bonds worth three hundred thousand tons of gold, along with all the credit and assets my guild could mobilize, I would collect the premiums from selling those options and use that capital to buy a massive quantity of call options on the Grand Duchy's bonds.
If I bought a massive amount of call options on bonds that were rumored to be losing, the other merchant guilds would think I was a madman and happily sell them to me. After all, the likelihood of the Grand Duchy losing would seem absolute.
If I couldn't buy as much as I wanted within the empire, I even planned to propose buying call options to investment firms in the Allied Kingdom. Those investment firms would undoubtedly view me as an idiot. I might end up buying even more options than the actual volume of bonds in circulation.
Normally, such a thing would be impossible, but when they realized they could pocket tens of thousands of gold coins in pure profit just by selling me Grand Duchy call options, they wouldn't be able to resist. It was highly likely that more call option contracts would be written than there were actual bonds. And that would create an incredibly entertaining situation.
The moment they believed the Grand Duchy was on the verge of defeat, those who sold the call options would expect to sit on a mountain of gold. But when I ultimately won the war, the tables would turn completely.
I would be able to buy the skyrocketed Grand Duchy bonds at a dirt-cheap strike price. Conversely, I could sell the worthless bonds of the defected Anti-Emperor Faction at an absurdly high price. In other words, with a single put option on the defected faction's bonds, I could buy their worthless bonds—which wouldn't even fetch a single bronze coin—and sell them back to the option writers for over a million gold coins, since the minimum trading unit for bond options was set at one million gold.
If I bought up as many of the circulating bonds as possible, the profits would be astronomical. And that wasn't even the only benefit.
Bonds naturally carry the obligation to pay interest and share the spoils of victory. However, if I bought back my own issued bonds at a dirt-cheap price during the panic, a massive spread would open up between the issuance price and the repurchase price. Furthermore, the interest I was obligated to pay would simply vanish, because I could just buy my own bonds and incinerate them.
In short, it was a long explanation, but as long as I was willing to shave away a bit of my conscience, I could easily secure more than enough funds for both the Information Department and the chemical fertilizer production, with plenty left over.
However, Theodora, having read through the entire document, let out a deep sigh, still looking utterly bewildered.
"Whew... Honestly, this is so complicated that I don't really understand it."
I nodded in agreement. "Of course it's hard to grasp. Unless you're directly involved in commerce or finance, it's perfectly normal not to understand a word of this."
"Then... with this? You can really earn that massive sum of money?"
I gave her a small nod. "Yes. Exactly."
Theodora stared at me with blank eyes before letting out another long sigh. "Sigh... You really are a genius. I don't think I could ever do what you do."
"Hmm? Why not?"
"Because... I've never even heard of things like 'call options' or 'put options' before."
"That's fine. You can learn from now on," I said. "At least you know what bonds are, so that's a start."
Rummaging through my desk drawer, I pulled out a sheet of paper, crossed out the word 'Bond' with my fountain pen, and handed it to her. "Here, take this."
She accepted the paper and blinked. "What is this now?"
"I've compiled a list of terms you probably don't know. Memorize all of them. Starting today, I'll give you a one-hour lesson on finance and commerce every night before bed. Study hard."
Theodora's face instantly turned pale, and she let out a cry of despair.
"You... you are truly terrible!"