The most commonly cited argument against currency hedging is the assertion that foreign exchange risk washes out over the long run. Of course, the fact that the pound depreciated from $7.39 during the mid 19th century to $1.40 at the beginning of the 21st century, and that both the yen and the deutschemark disappeared only to be subsequently reincarnated, provide rather striking counterexamples. But even if we set aside these facts and accept the view that foreign exchange risk washes out over long horizons, it does not necessarily follow that we should ignore the volatility introduced by currency exposure. It depends critically on how we perceive risk. This article is divided into three parts. The first part reviews currency arithmetic and shows explicitly how exchange rate fluctuations affect a foreign asset’s risk. It also contains a derivation of the minimum risk and optimal exposures to currency forward contracts. The second part presents two alternative approaches for measuring risk of loss, and it shows the effect of currency exposure on these two measures of risk of loss. The third part summarizes the article.