On the basis of regression equation P = a + b × S + e,we can decompose the variability of the dollar value of the asset,VAR(P),into two separate components: VAR(P)= b² × VAR(S)+ VAR(e).The first term in the right-hand side of the equation,b² × VAR(S)represents

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The first term, $bS_1U_1P_{12}S_1S_1P_0 \times VAR(S)$, represents the part of the variability of the dollar value of the asset that is directly related to random changes in the exchange rate. This is because it is a function of $VAR(S)$, which denotes the variability in the exchange rate $S$.

On the Basis of Regression Equation P = a