This paper examines the international Capital Asset Pricing Model (CAPM) in a world capital market where investors differ in the prices of goods they consume from their investment income. The authors test whether additional risk premiums for exchange rate risk play a significant role in pricing securities. They use a conditional version of the CAPM, which incorporates instrumental variables such as interest rates and dividend yields. The paper aims to discriminate between the classic CAPM, which does not include exchange-risk premia, and the international CAPM, which does. The authors find that the international CAPM is not rejected by the data, while the classic CAPM is. They also test the hypothesis that exchange rate risk is not priced and find that this hypothesis is rejected. The paper discusses the role of conditioning information and the robustness of the results, including the impact of finite sample size and non-stationarity. The findings suggest that exchange rate risk is priced in the international financial market.This paper examines the international Capital Asset Pricing Model (CAPM) in a world capital market where investors differ in the prices of goods they consume from their investment income. The authors test whether additional risk premiums for exchange rate risk play a significant role in pricing securities. They use a conditional version of the CAPM, which incorporates instrumental variables such as interest rates and dividend yields. The paper aims to discriminate between the classic CAPM, which does not include exchange-risk premia, and the international CAPM, which does. The authors find that the international CAPM is not rejected by the data, while the classic CAPM is. They also test the hypothesis that exchange rate risk is not priced and find that this hypothesis is rejected. The paper discusses the role of conditioning information and the robustness of the results, including the impact of finite sample size and non-stationarity. The findings suggest that exchange rate risk is priced in the international financial market.