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 second term in the right-hand side of the equation,VAR(e)represents

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The second term in the right-hand side of the equation, VAR(e), represents the residual part of the dollar value variability that is independent of exchange rate movements. This means that it is the part of the variability that cannot be explained by the relationship between the dollar value of the asset (P) and the exchange rate (S). Therefore, option B is the correct choice. Option A is incorrect because it refers only to the variability related to changes in the exchange rate, whereas VAR(e) includes variability unrelated to exchange rate changes. Option C is also incorrect because it combines both options A and B, which is not accurate. Option D is incorrect because there is a valid option.

On the Basis of Regression Equation P = a