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Solved Case Study Solution: Merton Electronics Corporation By Lee Remmers (Download Now)

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Description

Solution Pages: 5

Files that you will download:

Word (.docx) & Excel (.xlsx)

Structure of Solution

  • Summary
  • Problem Description
  • Alternate Solution
  • Recommendation

Sample of Solution

Summary:

Patricia Merton observed the fall in earnings despite a rise in sales. Since she had taken over the company this was the first time this type of situation had popped up. Patricia wanted to get to the bottom of this to mitigate the risk of uncertainty in the earnings and integrate operations to have stable revenue streams. Founded in 1950 by Thomas Merton, Merton electronics was a distributer for GEC which manufactured electrical products. As time went by, GEC products were deemed as obsolete and the company itself became uncompetitive for most of its products. As Japanese brought innovation in their electronics, Merton decided to enter into an agreement with them to distribute their products to retailers.

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Problem Description:

While hedging had its positives there were some issues pertaining to taking this decision as well. The issue that bothered the bankers was whether to hedge when the orders were placed or should they wait until the time when the purchase invoice was actually received. Hedging was always risky since there was no way to determine the way exchange rates would change. While perfect hedge can be created but it can result in significant unnecessary costs. Although, company had exposure of currency volatility to 60% of its purchases, different scenarios for hedging needed to be considered for effective cost saving.

……..

Problem Description:

While hedging had its positives there were some issues pertaining to taking this decision as well. The issue that bothered the bankers was whether to hedge when the orders were placed or should they wait until the time when the purchase invoice was actually received. Hedging was always risky since there was no way to determine the way exchange rates would change. While perfect hedge can be created but it can result in significant unnecessary costs. Although, company had exposure of currency volatility to 60% of its purchases, different scenarios for hedging needed to be considered for effective cost saving.

……..

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