Consider Hurd Co., a U.S.-based MNC that wishes to analyze its economic exposure with respect to the British pound. The firm is comprised of three major business units: Unit A, Unit B, and Unit C. Each unit conducts international transactions in pounds. Hurd gathers data on percentage changes in the cash flow of each unit, changes in the total cash flow of the company, as well as the change in the value of the pound over the last 12 quarters. A small subset of the data set is shown in the following table, with many of the observations omitted for brevity. % Change in Unit % Change in Unit % Change in Unit % Change in Total % Change in Quarter A's Cash Flows B's Cash Flows C's Cash Flows Cash Flows Value of Pound 1 -2 1 3 2 1 2 -1 0 2 1 4 12 3 0 1 4 -3 Hurd uses the data to estimate the following regression equation. PCF₁ = ao + a₁ (PCP₁) +µt Where PCF is the percentage change in the cash flows of the company at time period t (column 5 in the table), and PCP, is the percentage change in the value of the pound at that same time period (column 6 in the table). Assume that the estimate of a 1 is positive and statistically significant. This estimate of a1 suggests that a depreciation of the pound increases. Hurd's total cash flows.

Consider Hurd Co., a U.S.-based MNC that wishes to analyze its economic exposure with respect to the British pound. The firm is comprised of three major business units: Unit A, Unit B, and Unit C. Each unit conducts international transactions in pounds. Hurd gathers data on percentage changes in the cash flow of each unit, changes in the total cash flow of the company, as well as the change in the value of the pound over the last 12 quarters. A small subset of the data set is shown in the following table, with many of the observations omitted for brevity. % Change in Unit % Change in Unit % Change in Unit % Change in Total % Change in Quarter A's Cash Flows B's Cash Flows C's Cash Flows Cash Flows Value of Pound 1 -2 1 3 2 1 2 -1 0 2 1 4 12 3 0 1 4 -3 Hurd uses the data to estimate the following regression equation. PCF₁ = ao + a₁ (PCP₁) +µt Where PCF is the percentage change in the cash flows of the company at time period t (column 5 in the table), and PCP, is the percentage change in the value of the pound at that same time period (column 6 in the table). Assume that the estimate of a 1 is positive and statistically significant. This estimate of a1 suggests that a depreciation of the pound increases. Hurd's total cash flows.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter10: Measuring Exposure To Exchange Rate Fluctuations

Section: Chapter Questions

Problem 20QA

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