Question

Date	Stock price	USD/BRL
6/29/2018	0.20	3.9644
6/28/2018	0.25	3.959
6/27/2018	0.25	3.9734
6/26/2018	0.25	3.9588
6/25/2018	0.23	3.9691
6/22/2018	0.31	3.9719
6/21/2018	0.21	3.9833
6/20/2018	0.22	3.9734
6/19/2018	0.21	3.9725
6/18/2018	0.21	3.9726
6/15/2018	0.34	3.9642
6/14/2018	0.30	3.9647
6/13/2018	0.34	3.9607
6/12/2018	0.34	3.9566
6/11/2018	0.34	3.9609
6/8/2018	0.30	3.961
6/7/2018	0.29	3.9568
6/6/2018	0.29	3.9703
6/5/2018	0.29	3.9754
6/4/2018	0.30	3.9707
6/1/2018	0.35	3.9665
5/31/2018	0.40	3.9698
5/30/2018	0.35	3.9611
5/29/2018	0.35	3.9602
5/25/2018	0.27	3.9693
5/24/2018	0.29	3.9745
5/23/2018	0.15	3.9653
5/22/2018	0.15	3.9641
5/21/2018	0.20	3.9655
5/18/2018	0.20	3.9758
5/17/2018	0.12	3.9788
5/16/2018	0.14	3.9864
5/15/2018	0.14	3.989
5/14/2018	0.14	3.992
5/11/2018	0.16	3.9732
5/10/2018	0.20	3.9674
5/9/2018	0.20	3.983
5/8/2018	0.21	4.0069
5/7/2018	0.19	4.0121
5/4/2018	0.22	3.9906
5/3/2018	0.16	4.0016
5/2/2018	0.24	3.9817
5/1/2018	0.24	3.9983
4/30/2018	0.24	4.0006
4/27/2018	0.21	4.0138
4/26/2018	0.25	4.0212
4/25/2018	0.29	4.0128
4/24/2018	0.29	4.0086
4/23/2018	0.21	4.0088
4/20/2018	0.21	4.0008
4/19/2018	0.32	4.0337
4/18/2018	0.31	4.0273
4/17/2018	0.29	4.027
4/16/2018	0.29	4.0034
4/13/2018	0.26	4.002
4/12/2018	0.30	4.0086
4/11/2018	0.29	4.0014
4/10/2018	0.20	4.0103
4/9/2018	0.20	3.9883
4/6/2018	0.22	3.9831
4/5/2018	0.22	3.9706
4/4/2018	0.24	3.9257
4/3/2018	0.25	3.9256
4/2/2018	0.25	3.9074
3/29/2018	0.25	3.9089
3/28/2018	0.23	3.9226
3/27/2018	0.20	3.9512
3/26/2018	0.20	3.8993
3/23/2018	0.30	3.8555
3/22/2018	0.26	3.8589
3/21/2018	0.26	3.8433
3/20/2018	0.28	3.8485
3/19/2018	0.29	3.8381
3/16/2018	0.37	3.8258
3/15/2018	0.35	3.8153
3/14/2018	0.35	3.8178
3/13/2018	0.26	3.8303
3/12/2018	0.26	3.8173
3/9/2018	0.30	3.8222
3/8/2018	0.40	3.8246
3/7/2018	0.42	3.8129
3/6/2018	0.42	3.8004
3/5/2018	0.40	3.7867
3/2/2018	0.40	3.7991
3/1/2018	0.40	3.7964
2/28/2018	0.40	3.7836
2/27/2018	0.40	3.7879
2/26/2018	0.40	3.779
2/23/2018	0.40	3.7745
2/22/2018	0.42	3.7715
2/21/2018	0.42	3.7608
2/20/2018	0.42	3.7696
2/16/2018	0.45	3.7707
2/15/2018	0.47	3.7555
2/14/2018	0.40	3.7567
2/13/2018	0.35	3.7669
2/12/2018	0.35	3.7576
2/9/2018	0.30	3.7793
2/8/2018	0.15	3.7537
2/7/2018	0.35	3.7477
2/6/2018	0.38	3.7477
2/5/2018	0.37	3.7549
2/2/2018	0.35	3.7697
2/1/2018	0.36	3.7865
1/31/2018	0.45	3.7859
1/30/2018	0.37	3.7711
1/29/2018	0.32	3.7796
1/26/2018	0.27	3.7697
1/25/2018	0.37	3.7466
1/24/2018	0.35	3.7388
1/23/2018	0.32	3.7452
1/22/2018	0.35	3.711
1/19/2018	0.35	3.7106
1/18/2018	0.35	3.7052
1/17/2018	0.35	3.6929
1/16/2018	0.33	3.6974
1/12/2018	0.32	3.7007
1/11/2018	0.30	3.696
1/10/2018	0.30	3.6909
1/9/2018	0.30	3.689
1/8/2018	0.31	3.6739
1/5/2018	0.30	3.6835
1/4/2018	0.44	3.6572
1/3/2018	0.44	3.6695
1/2/2018	0.44	3.6752
12/29/2017	0.50	3.6757
12/28/2017	0.46	3.6806
12/27/2017	0.46	3.6886
12/26/2017	0.45	3.6823
12/22/2017	0.45	3.6887
12/21/2017	0.45	3.6933
12/20/2017	0.45	3.6982
12/19/2017	0.45	3.6957
12/18/2017	0.45	3.6838
12/15/2017	0.45	3.6723
12/14/2017	0.45	3.6779
12/13/2017	0.44	3.6782
12/12/2017	0.42	3.6848
12/11/2017	0.45	3.6713
12/8/2017	0.45	3.6559
12/7/2017	0.50	3.6576
12/6/2017	0.45	3.6668
12/5/2017	0.45	3.6621
12/4/2017	0.45	3.647
12/1/2017	0.45	3.6391
11/30/2017	0.46	3.6492
11/29/2017	0.45	3.6512
11/28/2017	0.48	3.6433
11/27/2017	0.50	3.6293
11/24/2017	0.50	3.6297
11/22/2017	0.52	3.6201
11/21/2017	0.52	3.6159
11/20/2017	0.59	3.6175
11/17/2017	0.52	3.6198
11/16/2017	0.51	3.6142
11/15/2017	0.51	3.6186
11/14/2017	0.45	3.6081
11/13/2017	0.40	3.6235
11/10/2017	0.40	3.6194
11/9/2017	0.40	3.6173
11/8/2017	0.45	3.6164
11/7/2017	0.41	3.6089
11/6/2017	0.38	3.6179
11/3/2017	0.40	3.6172
11/2/2017	0.45	3.6132
11/1/2017	0.45	3.6085
10/31/2017	0.52	3.6147
10/30/2017	0.55	3.6001
10/27/2017	0.52	3.6061
10/26/2017	0.54	3.6126
10/25/2017	0.57	3.6061
10/24/2017	0.52	3.6005
10/23/2017	0.52	3.5932
10/20/2017	0.52	3.5924
10/19/2017	0.54	3.6047
10/18/2017	0.51	3.598
10/17/2017	0.55	3.5947
10/16/2017	0.55	3.5944
10/13/2017	0.50	3.6072
10/12/2017	0.58	3.5914
10/11/2017	0.60	3.5835
10/10/2017	0.60	3.5972
10/9/2017	0.59	3.5932
10/6/2017	0.50	3.594
10/5/2017	0.65	3.5872
10/4/2017	0.60	3.5894
10/3/2017	0.60	3.5905
10/2/2017	0.62	3.5935
9/29/2017	0.65	3.6052
9/28/2017	0.65	3.6094
9/27/2017	0.58	3.6057
9/26/2017	0.65	3.61
9/25/2017	0.62	3.5952
9/22/2017	0.59	3.5977
9/21/2017	0.50	3.6109
9/20/2017	0.55	3.6113
9/19/2017	0.55	3.6063
9/18/2017	0.52	3.6045
9/15/2017	0.59	3.5936
9/14/2017	0.59	3.5959
9/13/2017	0.55	3.5874
9/12/2017	0.60	3.5956
9/11/2017	0.60	3.5906
9/8/2017	0.60	3.5726
9/7/2017	0.50	3.591
9/6/2017	0.55	3.6046
9/5/2017	0.61	3.6019
9/1/2017	0.67	3.6015
8/31/2017	0.68	3.5876
8/30/2017	0.50	3.5801
8/29/2017	0.60	3.5925
8/28/2017	0.69	3.5842
8/25/2017	0.65	3.5645
8/24/2017	0.71	3.5655
8/23/2017	0.66	3.5584
8/22/2017	0.60	3.5634
8/21/2017	0.60	3.5623
8/18/2017	0.50	3.5645
8/17/2017	0.50	3.5648
8/16/2017	0.50	3.5446
8/15/2017	0.50	3.542
8/14/2017	0.43	3.543
8/11/2017	0.50	3.5643
8/10/2017	0.50	3.5477
8/9/2017	0.48	3.5555
8/8/2017	0.48	3.5531
8/7/2017	0.39	3.5437
8/4/2017	0.48	3.5333
8/3/2017	0.50	3.548
8/2/2017	0.50	3.5415
8/1/2017	0.50	3.5381
7/31/2017	0.50	3.5367
7/28/2017	0.49	3.5225
7/27/2017	0.41	3.529
7/26/2017	0.50	3.5382
7/25/2017	0.50	3.5342
7/24/2017	0.50	3.5323
7/21/2017	0.41	3.5327
7/20/2017	0.41	3.5373
7/19/2017	0.51	3.5289
7/18/2017	0.60	3.5282
7/17/2017	0.60	3.535
7/14/2017	0.60	3.5421
7/13/2017	0.60	3.5331
7/12/2017	0.64	3.5449
7/11/2017	0.60	3.5289
7/10/2017	0.60	3.5428
7/7/2017	0.60	3.5439
7/6/2017	0.60	3.5287
7/5/2017	0.60	3.5316
7/3/2017	0.65	3.5287

Use the data above:

How does a 1% change in the exchange rate for the Brazilian real affect the price of the stock?

Is the relationship between the changes in the value of the real and returns on the stock statistically significant? Explain how you determine this

If an investor owning stock in the company were to hedge the real related risk of the stock perfectly, how much lower would the risk of the investment be? (That is, how much lower would the volatility of the stock be after hedging real related risk?

When the value of the real increases, how does the stock price change?

Answer 1

a) By regressing change in Stock with change in USD/ BRL

Equation:SP =             ?₀ + ?₁ *ER

SP = ln (Stock Price_t / Stock Price_t-1)

ER = ln [((USD/ BRL) _t) / ((USD/ BRL)_t-1)]

• -6.979 and is significant at 97.1 % confidence level (1- p-value)

p-value =0.029.

for 1% increase in the exchange rate (depreciation of Real) will likely to decrease the return of stock by

-6.979*.01 =-0 .06979

And 1% decrease i.e. appreciation of Real return is likely to increase:

-6.979* - .01 =0 .06979

b) In regression output of Regression-1. R-squared is low, but low P value of coefficient (0.029) still indicate a real relationship between the significant predictors and the response variable.

Moreover, the residuals are not auto-correlated supporting the assumption of regression analysis.

d) Regressing absolute values of Stock Price on USD/BRL

Stock Price =

Increase in BRL will decrease USD/BRL, with negative coefficient of -0.719 the stock price is likely to increase.