Assume That Mill Corporation, a U $\mu$ _t
Where the Term on the Left-Hand Side Is the Following

question 65

Multiple Choice

Assume that Mill Corporation, a U.S.-based MNC, has applied the following regression model to estimate the sensitivity of its cash flows to exchange rate movements:
PCF_t = a₀ + a₁et + $\mu$ _t
Where the term on the left-hand side is the percentage change in inflation-adjusted cash flows measured in the firm's home currency over period t, and et is the percentage change in the exchange rate of the currency over period t. The regression model estimates a coefficient of a₁ of 2. This indicates that:

• A) if the foreign currency appreciates by 1%, Mill's cash flows will decline by 2%.
• B) if the foreign currency appreciates by 1%, Mill's cash flows will decline by .2%.
• C) if the foreign currency depreciates by 1%, Mill's cash flows will increase by 2%.
• D) if the foreign currency depreciates by 1%, Mill's cash flows will decline by 2%.
• E) none of the above

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Definitions:

Trough Level

The lowest concentration of a drug in the bloodstream, usually measured just before the next dose is due.

Anaphylactic Reaction

A severe, potentially life-threatening allergic response that requires immediate medical intervention.

Idiosyncratic Reaction

An unusual or unexpected reaction to a drug that is not related to the dose or duration of exposure.

Toxic Effect

Harmful physiological effects caused by exposure to toxic substances or chemicals.