This paper studies how financial market volatility drives exchange rates through the risk management practice of financial intermediaries. We build a model in which the major participants in the international financial market are levered intermediaries subject to Value-at-Risk constraints. Higher portfolio volatility translates into tighter funding conditions and increased marginal value of wealth. Thus, foreign currency is expected to appreciate. Our model can resolve the Backus-Smith puzzle, the forward premium puzzle, and the exchange rate volatility puzzle quantitatively. Our empirical tests verify two implications of the model that measures of both financial market volatility and funding condition have predictive power on exchange rates.