This dissertation examines foreign currency (FX) hedging and its implications for exchange rates, fund behavior, and investor expectations. The first chapter shows how time-varying hedging demand by non-US investors affects spot exchange rates. A model of spot and forward markets predicts that more price-sensitive hedging demand increases exchange rate volatility and generates a strong negative correlation between spot returns and changes in net hedging volumes. The second chapter uses fund-level FX derivatives data to study how European investment funds manage currency risk. Most funds rely on partial or unitary hedging, and derivative use does not significantly reduce average return volatility, although optimal strategies could do so at low cost. The third chapter develops a method to infer exchange rate expectations from allocations between hedged and unhedged ETFs. These portfolio-implied expectations outperform survey- and model-based measures in predicting future exchange rates, while investor disagreement explains a share of exchange rate volatility.