Layton Co$.($a U$.$S$.$ firm$)$ attempts to determine its economic exposure to movements in the Japanese yen by applying regression analysis to data over the last $36$ quarters:

SP $=$ b$0+$ b$1$e $+$

where SP represents the percentage change in Layton's stock price per quarter, e represents the percentage change in the yen value per quarter, and is an error term. Based on the analysis, the b$0$ coefficient is zero and the b$1$ coefficient is $0\mathrm{.}4$ and is statistically significant. Layton believes that the inflation differential has a major effect on the value of the yen $($based on purchasing power parity$).$ The inflation in Japan is expected to fall substantially while the U$.$S$.$ inflation will remain at a high level. Would you expect that Layton's value to be favorably affected, unfavorably affected, or not affected by its economic exposure over the next quarter? Explain.

Based on purchasing power parity, the relatively low inflation in Japan will place $-$Select$-$downwardupwardItem $1$ pressure on the yen. Since the coefficient $-$Select$-$b$1$ is positiveb$0$ is zeroItem $2,$ the percentage change in Layton's stock price $-$Select$-$is notis positivelyis negativelyItem $3$ related to e and, therefore, the value of the stock will $-$Select$-$decreaseincreasebe unchangedItem $4.$ Thus, Layton's value $-$Select$-$will be favorablywill be unfavorablywill not beItem $5$ affected.