Page 146 - TSMC 2022 Annual Report

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● Interest Rate Fluctuation
TSMC is is exposed to to interest rate risks primarily in in relation to to its investment portfolio and and outstanding debt Changes in in in in interest rates affect the the interest earned on
the the Company’s cash and cash equivalents and fixed income securities the fair value of those securities as as well as as the interest paid on
its debt The objective of TSMC’s investment policy is to achieve a a return that will allow the Company to preserve principal and support liquidity requirements The policy generally requires the Company to invest invest in in in investment grade securities and limits the amount of credit exposure to any one issuer TSMC’s cash and cash equivalents as as as well as as as fixed income investments in in in both fixed- and floating-rate securities carry a a a a a degree of interest rate risk The majority of TSMC’s fixed income investments are are fixed-rate securities which are are classified as as as financial assets at fair value through other comprehensive income and may have their fair value adversely affected due to a a a a a a rise in in interest rates rates At the same time if interest rates rates fall cash cash and cash cash equivalents as as well as as floating-rate securities may generate less interest income than expected TSMC has entered and may in in in the future enter enter into interest rate rate derivatives to partially hedge interest rate rate risk on
its fixed income investments and anticipated debt issuance However these hedges can offset only a a a a limited portion of of the the financial impact from movements in in interest rates The majority of TSMC’s long-term debt is fixed-rate and measured at amortized cost and as as such changes in in interest rates would not affect future cash flows or the carrying amount Certain of TSMC’s fixed income investments are primarily based on
on
on
the London Interbank Offered Rate (LIBOR) which will be replaced by alternative benchmark rates after June 30 2023 The transition from LIBOR to alternative benchmark rates might result in in in in a reduction in in in in TSMC’s interest income ● Foreign Exchange Volatility
Substantially all all of TSMC’s sales are denominated in in U S S S dollars and over half of its capital expenditures are denominated in in currencies other than the the NT dollar dollar primarily in U S dollars Euros and Japanese yen As a a a a a a a result any significant fluctuations to its disadvantage in the the exchange rate of the the NT dollar against such currencies in in in particular a a a a a a weakening of the U S dollar dollar against the NT dollar dollar would have an adverse impact on
the Company’s revenue and operating profit as expressed in in NT dollars For example every one percent depreciation of the U S dollar dollar against the NT dollar dollar would result in in an approximately 0 4 percentage point decrease in in in the Company’s operating margin based on
its 2022 results Conversely if if the U S dollar appreciates significantly versus other major currencies the the the demand for the the the products and and services services of TSMC’s customers and and for its goods and and services services will will likely decrease which will will negatively affect the Company’s revenue TSMC uses foreign currency derivative contracts such as currency currency forwards or or currency currency swaps to protect against currency exchange rate risks associated with non-NT-dollar- denominated assets and and liabilities and and certain forecasted transactions These hedges reduce but do not entirely eliminate the effect of foreign currency exchange rate movements on
its assets and liabilities Fluctuations in the the exchange rate between the the U S dollar and the the the NT dollar dollar may affect the the the U S dollar dollar value of the the the Company’s common shares and the the market price of the the Company’s American Depositary Shares (ADSs) as as well as as any any cash dividends paid in NT dollar on
on
TSMC’s common shares represented by ADSs ● Inflation
TSMC is subject to the effects of inflation through increases in the cost of raw materials used to produce our products wage expenses and and employee benefits and and costs in relation to construction of fabs Although TSMC does not believe that inflation has had a a a a a a a a a material impact on
on
on
its financial position
or results of operations to date a a a a high inflation in in the future may have an an adverse effect on
the Company’s ability to maintain current levels of of of profit margin if the selling prices of of of its products and services do not increase increase with these increased costs Amendments to Tax Regulations or Implementation of New Tax Laws
Any amendments to existing tax regulations or the implementation of any new tax laws in in the jurisdictions in in which TSMC operates its business may have an adverse effect on
its net income While the Company is subject to tax laws and regulations in various jurisdictions in in which it operates or conducts business TSMC’s principal operations are in in the R O C C and it is exposed primarily to taxes levied by the R R O O C C government The R R O O C C Controlled Foreign Company (“CFC”) rules enacted in 2016