The Following Regression Model Was Run by a U $\mu$ _t
Where the Term on the Left-Hand Side Is the to Determine

question 6

Multiple Choice

The following regression model was run by a U.S.-based MNC to determine its degree of economic exposure as it relates to the Australian dollar and Sudanese dinar (SDD) :
PCF_t = a₀ + a₁e_t + $\mu$ _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 was run over two subperiods for each of the two currencies, with the following results:
$\begin{array}{llcc} \text { } &\text { Regression Coefficient \( \left(a_{1}\right) \) }&\text {Regression Coefficient \( \left(a_{1}\right) \) }\\ \text { Currency} &\text { Earlier Subperiod }&\text {Recent Subperiod}\\ \text {Australian dollar (AS) } &-.80&.10\\ \text { Sudanese dinar (SDD) } &.20&.25\\\end{array}$


Based on these results, which of the following statements is probably not true?

• A) The MNC was more sensitive to movements in the Australian dollar than in the dinar in the earlier subperiod.
• B) The MNC was more sensitive to movements in the dinar than in the Australian dollar in the more recent subperiod.
• C) The MNC probably had more outflows than inflows in Australian dollars in the earlier subperiod.
• D) The MNC probably had more inflows than outflows denominated in dinar in the more recent subperiod.
• E) All of the above are true.

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Definitions:

Circular Flow

A model that illustrates the movement of goods, services, and money among households, businesses, government, and the foreign sector in an economy.

Leakages

In economics, it refers to the withdrawal of potential spending from the economy's circular flow, primarily through savings, taxes, and imports.

Household Production

The creation of goods and services by individuals or families within a home environment, not for formal market exchange.

Gross Domestic Product (GDP)

The complete market or financial worth of every finished good and service made within a nation's frontiers in a certain timeframe.