Current empirical research concludes that the effect of exchange rates on US stock returns is negligible. In contrast, we present new evidence that numerous US industries are exposed to exchange rates. The differences between our findings and those in the extant literature are a result of using a new methodological approach which takes account of exchange rate regimes based on periods of depreciation and appreciation. Within each regime we show that first, the market's own exposure to exchange rates should be taken into account before considering industry exposure, second, bilateral rates should be used as opposed to a currency basket, and third, the possible nonlinear nature of exchange rate exposure should be considered. We present new empirical evidence of important economic and statistical linear and nonlinear relationships between exchange rates and industry stock returns. The size and sign of exposure coefficients in each regime depends on the extent to which an industry imports and exports. We also present new results regarding the pricing of bilateral currency risk which we find to be statistically and economically significant. The expected return earned due to exchange rates is positive when the dollar is appreciating and negative when the dollar is depreciating.