Translation:Are you a foreign exchange student?
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Technically the subject of the sentence wasn't mentioned so 'she' is valid. But usually when you drop the subject you're either talking about yourself or the person you're directly speaking to, not all the time, but as there was no context before this it's best to assume the subject is I or you. Duolingo seems to try to explicitly state "kare wa" or "kanojo wa" when they want he or she in the answer. The answer could honestly be refering to anything being a foreign exchange student based on context. But duolingo can't account for all possibilities so the safe bet for an answer defaults to I or You for contextless questions.
Continuing what Dante.I. said, Japanese is a very context-heavy language. Unless you're starting or changing the topic of the conversation, you will very rarely include it in the sentence. So while technically "Is she an exchange student?" would have been correct, Duolingo is limited and can't give the full experience of Japanese conversation in context, and so pretty exclusively will mean anything without a pronoun means either you or I which can be more easily inferred from the sentence context.