2019, Sydney purchased $10,000 worth of Chinese securities at 6.40 CNY per $USD with an expected 4.5% return on the investment after one year. Instead, she could have purchased $10,000 worth of US securities with a 6% return after one year.   1. Briefly explain why Sydney was exposed to foreign exchange risk. Be specific.

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Chapter31: Open-Economy Macroeconomics: Basic Concepts
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In 2019, Sydney purchased $10,000 worth of Chinese securities at 6.40 CNY per $USD with an expected 4.5% return on the investment after one year. Instead, she could have purchased $10,000 worth of US securities with a 6% return after one year.

 

1. Briefly explain why Sydney was exposed to foreign exchange risk. Be specific.

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