You are considering purchasing HKD-bonds. An investment advisor informs you " You can exchange USD for HKD in the spot exchange market, invest in in a risk-free, one-year HKD bond, and use a one-year forward contract for converting the proceeds back into USD". Spot exchange rate (HKD/USD)=0.1714 One-Year HKD Interest Rate =2.20% One-Year Forward Rate (HKD/USD) =0.1724 Over a one-year investment horizon, the investment proposed by your adviser, most likely: is risk-free is exposed to interest rate risk is exposed to exchange rate risk