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April 2, 2024

Task In this assignment, you will work on a project which includes the following: Running a regression of stock returns against changes in exchange rates Interpret the findings of the

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Task

In this assignment, you will work on a project which includes the following:

  • Running a regression of stock returns against changes in exchange rates
  • Interpret the findings of the regression analysis
  • Estimate the degree of economic exposure based on the results from the regression analysis
  • You will do all of the above twice, first using some made-up data provided below (Economic Exposure Sheet) ; and a second time using an actual MNC you will select. (McKesson) Excel for that company is is also attached.

Instructions

Download the spreadsheet “Economic Exposure”.  The file contains the following data over a 61month interval (these are data I made up for Part 1): (Sheet is attached on file)

  1. the stock price of a multinational company,
  2. the value of the European Currency Unit (ECU), quoted $/ECU.

PART 1

Step 1: Use the price series for the company to calculate monthly returns.  Note that 61 months of price data will generate 60 months of returns.  Similarly, use the ECU series to calculate the monthly percentage changes in the dollar value of the ECU.  Show the two series of changes in two separate columns next to the original prices and exchange rates.

Step 2: Regress the return on the company against the percentage changes in the ECU.  Stated differently, the return on the company is the dependent (y-axis) variable and the change in the value of the ECU is the independent (x-axis) variable. Report the slope coefficient and its p-value, and the R-squared of the regression. The regression output should be shown in the Excel file.Step 3: In one Word page, interpret the results as follows:

  1. Provide an interpretation for each of the i) p-value of the estimated slope coefficient, ii) slope coefficient, and iii) R-squared
  2. How does the value of the company change when the dollar depreciates?
  3. How much economic exposure does the company have? Here you reach a conclusion based on your answers to 1 and 2 above.

You will submit one Excel file with the regression data and results and one Word file with the interpretation. However, you may choose to provide your interpretation in the Excel file and submit just one Excel file and no Word file if you prefer. This is Part 1 of the assignment.

PART 2

Now select a Multinational Company that has a least 60 monthly return observations available at finance.yahoo.com and estimate the firm’s level of economic exposure using regression analysis, as in Part 1. Exchange rate information is available at, for example Historical ratesLinks to an external site. As part of your answer, provide the following information:

  1. Identify the Multinational Company – (Mckesson)
  2. Assess qualitatively the firm’s exposure to exchange rate risk after examination of the firm’s revenue information by geographical segment (for example, from SEC 10-K filings at U.S. SECURITIES AND EXCHANGE COMMISSIONLinks to an external site. and then “Filings”). Use this to briefly explain your choice of currencies to use in the regression analysis.
  3. Provide and interpret the results of your regression analysis as you did in Part 1. Assess quantitatively the level of economic exposure of the firm relative to movements in the currency or currencies you selected. In your interpretation, follow the structure of Part 1.
  4. Important: Make sure the dates for exchange rates and stock prices match when you put them both in the same Excel file as in Part 1. Use “adjusted prices” if you get your monthly stock prices from Yahoo FinanceLinks to an external site. (i.e., stock prices adjusted for stock splits)

 Also, watch the assignment video at the bottom of the Module 9 page.

https://youtu.be/xN5LRjuf2wU

  • attachment

    Economic_Exposure_Sp2023.xls

  • attachment

    McKessonRegressionAnalysisAssignment.xls

  • attachment

    RegressionAnalysisgetstartedanswer-1.docx

data

Month Stock Dollar per
Price ECU
1 35.550 1.1845
2 36.175 1.1920
3 36.050 1.2085
4 36.175 1.2144
5 36.300 1.2032
6 36.175 1.2107
7 36.800 1.2071
8 36.425 1.2083
9 36.425 1.2052
10 35.425 1.2220
11 34.050 1.2326
12 33.425 1.2376
13 37.675 1.2205
14 38.550 1.2240
15 38.050 1.2315
16 38.800 1.2359
17 39.050 1.2442
18 39.300 1.2407
19 39.800 1.2324
20 39.175 1.2348
21 39.550 1.2097
22 39.050 1.2094
23 38.800 1.2100
24 38.425 1.2075
25 38.925 1.2123
26 39.050 1.2265
27 40.800 1.2344
28 40.550 1.2277
29 40.800 1.2255
30 40.550 1.2381
31 40.550 1.2349
32 40.425 1.2363
33 38.550 1.2363
34 39.300 1.2321
35 38.550 1.2349
36 38.675 1.2313
37 37.800 1.2303
38 37.800 1.2332
39 37.925 1.2341
40 37.800 1.2345
41 38.300 1.2295
42 38.050 1.2382
43 38.675 1.2323
44 38.425 1.2357
45 38.425 1.2326
46 38.925 1.2313
47 38.925 1.2367
48 38.675 1.2379
49 38.300 1.2394
50 37.550 1.2994
51 37.800 1.2994
52 40.050 1.2352
53 39.800 1.2387
54 39.800 1.2447
55 39.425 1.2538
56 39.425 1.2701
57 39.300 1.2684
58 40.050 1.2689
59 39.550 1.2738
60 39.675 1.2694
61 39.640 1.2743

,

Data Provided

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Month Stock Dollar per
Price ECU
1 35.550 Rate of Return 1.1845 Change in Exchange Rate
2 36.175 1.8% 1.1920 0.6%
3 36.050 -0.3% 1.2085 1.4%
4 36.175 0.3% 1.2144 0.5%
5 36.300 0.3% 1.2032 -0.9%
6 36.175 -0.3% 1.2107 0.6%
7 36.800 1.7% 1.2071 -0.3%
8 36.425 -1.0% 1.2083 0.1%
9 36.425 0.0% 1.2052 -0.3%
10 35.425 -2.7% 1.2220 1.4%
11 34.050 -3.9% 1.2326 0.9%
12 33.425 -1.8% 1.2376 0.4%