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

question 1

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 + 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 e_t 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:

Primates

An order of mammals that includes humans, apes, monkeys, and prosimians, characterized by advanced cognitive abilities, dexterous hands, and typically social behaviors.

Order

A state of organized, structured arrangement or sequence.

Family

Family refers to a social unit or group of individuals related by blood, marriage, or adoption, often forming the primary context for socialization and emotional support.

Blood Flow

The continuous circulation of blood through the cardiovascular system to deliver oxygen and nutrients to tissues and organs.