Answer Happy

Chance Co, the parent of a US-based MNC, uses fundamental forecasting to estimate future values of exchange rates. Suppose that Chance Co. believes that movements in the value of the British (as measured by percentage change from the previous quarter, en pound are dictated entirely by the inflation rate differential between the pound and the US dollar in the previous quarter Inf. That is, the firm wees the following regression equation: e bot bi lng. + Where is the error term and be is a constant Suppose that Chance Co estimates by to be 0.0 and b, to be 0.7. According to these estimates, which of the following is associated with a one unit increase in If? O An increase in the value of the pound by 0.7 percent O A decrease in the value of the pound by 0.3 percent A decrease in the value of the pound by 0.7 percent An increase in the value of the pound by 0.3 percent Suppose the inflation rate differential between the UK and the U.S. In the previous quarter was 3 percent According to the estimated regression equation, which of the following is closest to the estimated percentage change in the value or the pound? 0 2.3 2.1 4.2857 O 3.7