A U.S. insurance company invests $1,000,000 in a private placement of British bonds. Each bond pays £300 in interest per year for 20 years. If the current exchange rate is £1.5612 for US$1, what is the nature of the insurance company’s exchange rate risk? Specifically, what type of exchange rate movement concerns this insurance company? (LG 20-1)

AppendixLO1