U.S. Semiconductor Ltd.Case Study

1036 WordsDec 1, 20115 Pages
Background U.S. Semiconductor, a semiconductor manufacturer decided to expand their business to UK market in 1980. Their new business plan needed specialized technical support facility in UK. In order to minimize the equity investment, they decided to fund their assets mostly with debt. As Semiconductor owned subsidiaries, which spread all over the world, they face great exchange risk. Besides, instead of building a production department in UK, Semiconductor kept producing their products domestically and delivered them to UK by plane. British firms also confronted exchange risk due to the difference between import costs and sales revenues. This case mainly involves the discussion on the method of debt funding. Discussion Learned from…show more content…
Summary To sum up, each of these funding approaches has their own flaws, but their benefits can not be ignored. Personally, among these arguments, I agree with funding in GBP most. According to the case, the spot rate for STG was quoted at approximately USD 2.4 and five-year forward was available at USD 1.97, and the interest rate in US is 8% and 12% in UK, the estimated forward price should be nearly $2 .(F=2.4*[(1+8%)/(1+12%)]). Apparently, the pound sterling was undervalued in the market, causing continuously decrease of the GBP price. Consequently, the company can return less GBP, gaining from the depreciation of pound sterling. As the finance staff said, nobody could really tell which way exchange rates would go. It is hard to find a totally perfect way to avoid all the risks. So, making decision according to current information might be the most effective

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