Suppose that you buy, and one year later sell, a foreign (British) bond under the following circumstances:
When you buy the bond the exchange rate is $2.00 = 1 pound. You pay 45 pounds ($90.00) for the British bond. You sell the bond for 50 pounds. No interest payment was expected or received. When you sell the bond, the exchange rate is $1.70 = 1 pound.
