Question

​Assume that your firm is an importer of Mexican chairs denominated in pesos. Your competition is mainly U.S. producers of chairs. You wish to assess the relationship between the percentage change in the firm’s stock price (SPt) and the percentage change in the peso's value relative to the dollar (PESOt). SPt is the dependent variable. You apply the regression model to an earlier subperiod and a more recent subperiod. In the recent subperiod, you increased your importing volume. You should expect that the regression coefficient in the PESOt variable would be ____ in the first subperiod and ____ in the second subperiod.

Answer 1

negative, negative.

Step-by-step explanation:

So, let us fill in the gap in the question given above. Bother that the capitalized words are the answers to the missing gaps;

" ​Assume that your firm is an importer of Mexican chairs denominated in pesos. Your competition is mainly U.S. producers of chairs. You wish to assess the relationship between the percentage change in the firm’s stock price (SPt) and the percentage change in the peso's value relative to the dollar (PESOt). SPt is the dependent variable. You apply the regression model to an earlier subperiod and a more recent subperiod. In the recent subperiod, you increased your importing volume. You should expect that the regression coefficient in the PESOt variable would be NEGATIVE in the first subperiod and NEGATIVE in the second subperiod."

This question is all about the measurement of exposure to exchange rate fluctuations. The measurement of exposure to exchange rate fluctuations is done by firms in order to be able to calculate the risk involves in exchange rate fluctuations.

In the problem given Above, as the importing volume increase, we have a negative regression coefficient in the PESOt variable.