Measurement Economic Exposure

Its measurement is a daunting . A’workable approach is  ·  suggested by Shapiro. The approach is based on an operational definition of the exchange risk encountered by a parent or one of   ts foreign subsidiaries, A company faces exchange risk to  he. extent that variations in the dollar value of the uni\S’ cash flows are  correlated with variations in the nominal exchange rate his Correlation is the masc thing that a regression analysis seeks to  provide  The relevant regression equation in this regard is: l Image’  and  F,  equals the dollar value of total affiliate (parent) cash flows in  period t.  & EACH, EACH,- and £CH, equals the average  nominal exchange rate (dollar value of one unit of the foreign   Currency) during period  random error term with mean  Equation 35.2 provides three key parameters: (I) The foreign  change beta coefficient  measures the sensuality o.f dollar  ash flows. to exchange rate changes (U) the’ r statistic   erasures  statistical Significance of the beta coefficient and (ill) the Rl   erasures the fraction of Colitis now variability explained by  variations in exchange rates. The’ higher the value of Po the greater the  impact of the change. in exchange rates on the dollar value  cash flows. The rum is more

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