In the equation Profits = a + b × ($/₤ exchange rate), b is a measure of
A) the firm's beta when measured in terms of the foreign currency.
B) the ratio of the firm's beta in terms of dollars to the firm's beta in terms of pounds.
C) the sensitivity of profits to the exchange rate.
D) the sensitivity of the exchange rate to profits.
E) the frequency with which the exchange rate changes.

Question

Quizplus · Accepted Answer

In this equation, b represents how much the profits change in response to a change in the $/₤ exchange rate. This is a direct measure of the sensitivity of profits to changes in the exchange rate, making option C correct.

In the Equation Profits = a + B × ($/₤