3. Fundamental forecasting Chance Co., the parent of a US-based MNC, uses fundamental forecasting to estimate future values of exchange rates. Suppose that Chance Co. believes that movements in the value of the British (as measured by percentage change from the previous quarter), ebp, pound are dictated entirely by the inflation rate differential between the pound and the U.S. dollar in the current quarter Inf. That is, the firm uses the following regression equation: ebp = bo + b Inf, + Where y, is the error term and bo is a constant. Suppose that Chance Co. estimates bo to be 0.0 and bi to be 0.6. According to these estimates, which of the following is associated with a one unit increase in Inf? A decrease in the value of the pound by 0.6 percent A decrease in the value of the pound by 0.4 percent O An increase in the value of the pound by 0.4 percent O An increase in the value of the pound by 0.6 percent Suppose the inflation rate differential between the U.K. and the U.S. in the current quarter is 3 percent. According to the estimated regression equation, which of the following is closest to the estimated percentage change in the value of the pound? 3.6 5 O O 1.8 2.4