Measuring effects on exchange rates. Tarheel Co. plans to determine how changes in UK and euro real interest rates will affect the value of the British pound.
a. Describe a regression model that could be used to achieve this purpose. Also explain the expected sign of the regression coefficient.
b. If Tarheel Co. thinks that the existence of a quota in particular historical periods may have affected exchange rates, how might this be accounted for in the regression model?