Assume that you wanted to study the impact of the exchange rate changes on the value of a company. Your literature review revealed that there are two widely used empirical models for this purpose:

1) Original model used by Adler and Dumas

2) Expanded model introduced by Jurion A) why academics studying currency exposure felt the need to expand the Adler-Dumas Model?

A. What is the market risk factor introduced in the expanded model expected to capture? How do we interpret the exposure coefficients in these models?

B. The empirical studies using the expanded model generally report small and often insignificant exposure coefficients. Does this mean that a company with an insignificant exposure coefficient has no currency exposure? Explain the answer.

C. How would you modify the expanded model so that you can capture the accurate exposure rather than residual exposure of a firm?