Assume that Jacob Co. (a U.S. firm) measures its economic exposure to movements in the British pound by applying regression analysis to data over the last 36 quarters: SP = b0 + b1e + u where SP represents the percentage change in Jacobs stock price per quarter,e represents the percentage change in the British pound value per quarter, and u is an error term. Based on the analysis, the b0 coefficient is estimated to be zero and the b1 coefficient is estimated to be 0.5 and is statistically significant. Jacob Co. believes that the movement in the value of the pound over the next quarter will be mostly driven by the International Fisher Effect.The prevailing quarterly interest rate in the U.K. is HIGHER than the prevailing quarterly interest rate in the U.S. Would you expect that Jacobs value will be favorably affected, unfavorably affected, or not affected by the pounds movement over the next quarter?

Question options:

	Favorably affected.
	Unfavorably affected.
	Not affected.

Question 3

0 / 20 points

If a U.S. firm has much more revenue than expenses denominated in Japanese yen, the firm will likely ____ if Japanese yen ____. Question options:

	be unaffected; weakens
	benefit; weakens
	benefit; strengthens
	be unaffected; strengthens