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Emerson Electric Hbr Case

In: Business and Management

Submitted By hhheidijo
Words 618
Pages 3
Heidi Heckel
Prof. Boschen
International Finance: Emerson Electric Company Case Write up
September 14, 2015

Emerson Electric does the majority of its business in the United States, however foreign sales are growing as a direct result of a new strategy that focuses on offshore production rather than export. It increased its offshore plants from 50 in 1981 to 82 1986 and has seven subsidiaries in Switzerland and one in New Zealand. Emerson’s total foreign assets almost doubled since 1984 and net assets have risen 70%. It also has 200 million in Eurodollar notes outstanding, while concurrently, the dollar started to weaken against other world currencies. Emerson did partially hedge against the exposure created by it’s 7.875 Eurodollar note due in 1998 by acquiring other currencies that, grouped together, had an interest rate of 5.86%. This helped to offset their cost of debt. Emerson needs to raise capital and therefore plans on issuing 65 million in new debt in the spring of 1987. Emerson has three potential opportunities to consider and it must choose wisely. The three possibilities are issuing a domestic bond, a Swiss Eurobond or a New Zealand Eurobond. The economies of these three countries are very different. As stated earlier, it is anticipated that the US dollar will loose some of its value compared to other foreign currencies. If we also look at analyzing the US Treasury Bill against the inflation rate, we can see that the difference is hovering in a positive position just between a 0.6 and 1.4 percent, which is quite low. The US is also importing more than it is exporting which is a contributing factor to the decline in the GNP leading to a lack of confidence in the US economy. Turning to Switzerland; it has always been quite stable, however the demand for Swiss fancs dropped in 1986 and the Eurobond market moved from Switzerland to London. Some of…...

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