Suppose you start with $100$ USD and buy stock for $50$ GBP when the exchange rate is GBP$/$USD $=2.$ 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 $60$ GBP for dollars, you only get $$45$ since the pound has fallen to

GBP$/$USD $=0\mathrm{.}75.$ This loss of value is an example of

market imperfections.

exchange rate risk

political risk

weakness in the dollar.