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: PCFt = percentage change in annual U.S. dollar cash flows et = percentage change in the exchange rate for the Mexican peso (measured in U.S. dollars per peso) Part 1
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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:
- PCFt = percentage change in annual U.S. dollar cash flows
- et = 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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