SIE (Securities Industry Essentials) Practice Exam

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Which risk is exclusive to foreign debt instruments and not domestic ones?

Credit
Liquidity
Exchange
Reinvestment

The correct answer is: Exchange

Exchange risk is the risk associated with changes in currency exchange rates between the country where the debt instrument is issued and the country where it is held. This risk is exclusive to foreign debt instruments because they involve multiple currencies, whereas domestic debt instruments are issued and held in the same currency within one country. The other options, credit, liquidity, and reinvestment risks, can apply to both foreign and domestic debt instruments.