MErton Electronics

Merton Electronics Corporation was founded in 1950 as a distributor of electrical and electronics products for consumer and institutional products. It imports a wide range of electronic goods from personal computers to cassettes from Japan and Taiwan, which are then distributed to retail firms and dealers. The company is facing heavy competition with slowing sales and increasingly smaller margins. One of the major issues facing the firm is the risk associated with the import of the foreign goods from Japan.

In order to determine the proper hedge to be used in this case the risk must first be identified. Due to the international nature of Merton Electronics’ business, the company could face a very high degree of currency risk. Currency risk is simply the degree to which the business is affected both positively and negatively by changes in exchange rates. It can refer to potential losses in investments, business transactions, and operating expenses due to fluctuations in ex...