Companies A and B are both U.S. companies with operations in Mexico. The regression equations explaining are given below:Company A:PCFt=0.032 −2.7et+μtPCFt=0.032 -2.7et+μtCompany B:PCFt=0.005+3.5et+μtPCFt=0.005+3.5et+μtwhere:PCFt = percentage change in annual U.S. dollar cash flowset = percentage change in the exchange rate for the Mexican peso (measured in U.S. dollars per peso) Part 1Which company has more economic exposure to the Mexican peso?Company ACompany B Part 2Which statements are likely to be true?Check all that apply:Company B primarily imports from Mexico.Company A primarily imports from Mexico.Company A primarily exports to Mexico.Company B primarily exports to Mexico.

Company A: PCFt= =0.032 -2.7et+μt Company B: PCFt=0.005+3.5et+μt

Answered: Companies A and B are both U.S.…

Practical Management Science

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ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

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Companies A and B are both U.S. companies with operations in Mexico. The regression equations explaining are given below:

Company A:

PCFt=0.032 −2.7et+μtPCFt=0.032 -2.7et+μt

Company B:

PCFt=0.005+3.5et+μtPCFt=0.005+3.5et+μt

where:

PCF_t = percentage change in annual U.S. dollar cash flows
e_t = percentage change in the exchange rate for the Mexican peso (measured in U.S. dollars per peso)

Part 1

Which company has more economic exposure to the Mexican peso?

Company A

Company B

Part 2

Which statements are likely to be true?

Check all that apply:

Company B primarily imports from Mexico.

Company A primarily imports from Mexico.

Company A primarily exports to Mexico.

Company B primarily exports to Mexico.

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