Taskin: This Assignment You Will Work On A Project Which Inc

Taskin This Assignment You Will Work On A Project Which Includes The

In this assignment, you will work on a project that involves performing a regression analysis of stock returns against changes in exchange rates to interpret the findings, estimate the degree of economic exposure, and evaluate the company's vulnerability to currency fluctuations.

You will first use made-up data provided in the “Economic Exposure” spreadsheet, which includes 61 months of data on a company's stock price and the value of the European Currency Unit (ECU) in USD. Then, you will select an actual multinational corporation (e.g., McKesson), gather its stock and exchange rate data, and replicate the analysis.

The project is divided into two parts:

Part 1

1. Calculate monthly returns for the company's stock price and the percentage changes in the ECU's dollar value, displaying the new series in columns adjacent to the original data.
2. Perform a linear regression of the company's stock returns as the dependent variable against the ECU percentage changes as the independent variable. Extract and report the regression's slope coefficient, its p-value, and the R-squared value, and show the regression output in Excel.
3. Interpret the results in a Word page, including:

• The significance of the p-value of the slope coefficient.
• The meaning of the slope coefficient regarding the company's sensitivity to currency fluctuations.
• The R-squared value indicating how much of the variation in stock returns is explained by exchange rate changes.

Discuss how the company's share price changes when the dollar depreciates and estimate its level of economic exposure based on the regression findings. Conclude with an overall assessment of the company's currency risk exposure.

Part 2

4. Select a multinational company with at least 60 months of stock return data available on Yahoo Finance, such as McKesson.
5. Assess qualitatively the firm's exposure to currency risk by examining revenue sources through SEC 10-K filings, identifying relevant currencies, and explaining the choice of currencies for analysis.
6. Gather corresponding exchange rate data matching the stock return period, calculate monthly returns and percentage changes, and perform regression analysis as in Part 1.
7. Interpret the results similarly: report coefficients, p-values, and R-squared; analyze the company's economic exposure relative to currency movements; and conclude on its currency risk profile.

Submission should include one Excel file with raw data, calculations, and regression results, and one Word document with your interpretation and analysis. Alternatively, you may embed your interpretation directly within the Excel file.

Paper For Above instruction

The following paper presents a comprehensive analysis of exchange rate exposure of multinational corporations through regression analysis, illustrating both the methodology and implications of economic exposure estimation. This study involves two key components: an exploratory analysis using made-up data and a real-world application with the multinational corporation McKesson. The primary goal is to understand how exchange rate fluctuations influence stock returns and to quantify the company's currency risk exposure.

In the initial phase, the dataset provided encompasses 61 months of stock prices and ECU exchange rates. The first step involves generating monthly returns for the company's stock by calculating the percentage change in stock prices from month to month. Simultaneously, the percentage change in the value of the ECU in USD is computed to reflect currency fluctuations over the period. These calculations facilitate the alignment of data points and prepare the dataset for regression analysis.

The regression analysis models the company's stock return as a function of the change in the ECU's value. Specifically, the dependent variable is the stock return, and the independent variable is the percentage change in the ECU. This model is implemented in Excel, and the output includes the slope coefficient (beta), its p-value, and the R-squared statistic. The slope coefficient indicates the sensitivity of stock returns to exchange rate changes, with a positive coefficient suggesting a direct relationship, while a negative coefficient indicates an inverse relationship.

The interpretation of the regression results emphasizes the significance and economic implications of the findings. The p-value of the slope coefficient determines whether the relationship is statistically meaningful; a small p-value (typically less than 0.05) signifies a statistically significant relationship. The slope coefficient itself embodies the degree of exposure; a larger magnitude indicates that the company's stock is highly sensitive to currency movements. The R-squared value quantifies the proportion of variance in stock returns explained by exchange rate variations, providing a measure of how much of the company's return volatility is driven by currency risk.

For example, if the regression reveals a negative slope coefficient with a statistically significant p-value, and an R-squared of 0.15, it implies that a 1% depreciation of the dollar (relative to the ECU) coincides with approximately a 0.XX% change in the company's stock return, and that about 15% of the variability in stock returns is attributable to currency fluctuations. This indicates a certain level of economic exposure, suggesting that currency movements can influence investor perceptions and valuation of the company.

In the second part, the analysis is extended to an actual company, McKesson, known for its extensive operations in healthcare and pharmaceuticals. Data collection involves retrieving historical stock prices from Yahoo Finance, ensuring the data spans at least five years to match the currency exchange periods. The choice of currencies for regression is informed by McKesson's revenue breakdown obtained from SEC filings, which reveal significant exposure to US dollars, Euro, or other foreign currencies depending on revenue sources. Understanding these exposures aids in selecting the appropriate exchange rates for analysis.

The collected exchange rate data is matched with stock prices over corresponding months to ensure temporal consistency. The same regression procedure is applied, and the analysis interprets the coefficients to assess McKesson's sensitivity to currency fluctuations. If, for instance, the regression indicates a significant positive coefficient relative to the Euro, it suggests that currency appreciation benefits the firm's stock performance, possibly due to revenue exposure or hedging strategies.

The overall conclusion drawn from these analyses provides insights into the firm's economic exposure. A high sensitivity underscores the importance for managers to consider currency risk management strategies, such as hedging, diversification, or operational adjustments to mitigate adverse effects. The empirical results from regression analysis furnish quantifiable measures of exposure, aiding investors and corporate decision-makers in understanding and managing foreign exchange risks effectively.

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