It's relative to the location of the executable, not the current working directory.

The idea on Windows is that an application's directory is a trusted location created specifically for that application. Running executables directly out of a Downloads folder is a violation of the Windows security model, so in that sense the security vulnerability is Chrome's fault, as the "correct" thing to do is to put downloaded files into different folders as older versions of IE did. Of course, that's terrible UX, and considering that this exact problem has been popping up for decades, I'd consider a manifest flag for "don't trust the application directory" long overdue.