Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2.One year later,the stock rises to £60.You are happy with your 20 percent return on the stock,but when you sell the stock and exchange your £60 for dollars,you only get $45 since the pound has fallen to £1 = $0.75.This loss of value is an example of
A)exchange rate risk.
B)political risk.
C)market imperfections.
D)weakness in the dollar.

Question

Quizplus · Accepted Answer

This loss of value is due to the fluctuations in the exchange rate between pounds and dollars, which is commonly known as exchange rate risk.

Suppose You Start with $100 and Buy Stock for £50