Foreign exchange risk is a significant factor in international markets. A new analysis suggests that optimal currency risk hedging can be achieved without making arbitrary assumptions. In an international economy where purchasing power parity is not upheld, asset prices include a risk premium for currency risk. The optimal portfolio for an investor includes components that hedge against domestic interest rate risk and the co-variation of interest rates and international market prices. This strategy effectively hedges against deviations from purchasing power parity and ensures currency risk is managed and priced in market equilibrium.