Here is a framework to determine the currency hedging policy that matches the risk/return trade-off implicit in the investor’s choice of the underlying portfolio. Such an approach permits the investor to assume non-zero expected returns for currency forward contracts consistent with historical evidence that the forward rate is a biased estimate of the future spot rate. The author addresses the major issues that have led others to debate the merits of currency hedging, and he presents a general algorithm with which to derive the solution in the presence of exposure constraints.