very good starting point for a global equilibrium model. In fact, to the extent that all people around the globe share a common utility function the domestic CAPM extends quite naturally to the global context. We can think of individuals in a global economy investing in global assets and consuming a common global basket of goods and services. Just as in the domestic context, risk premiums should be proportional to the covariance of each asset's returns with the global market portfolio. In a 1977 discussion of this issue,1 Richard Roll and Bruno Solnik summed it up this way: "If markets were perfect, or nearly so, and if the same consumption of goods were produced and consumed in the same proportions in all countries of the world; if anticipation were homogeneous and if transportation were costless and instantaneous; then the international asset pricing theory would be indeed a trivial extension of the standard domestic model." There is nothing fundamentally wrong with this simple extension of the domestic model to the international sphere, but there is an immediate issue, which, over the years since the publication of the domestic CAPM, has led to many alternative, more complicated, global models being proposed. The unfortunate issue that leads to these complications is currency risk. The currency issue arises from the seemingly trivial question, "What units do we measure things in?" We might suppose that units shouldn't affect real quantities, and that is correct up to a point. We can suppose that everything be measured in U.S. dollars, or gold, or units of the common consumption basket-it doesn't really matter as long as everyone has a common utility function. In this simple world, the domestic CAPM functions as a global CAPM and all the results remain true. Roll and Solnik put it this way: "Under these circumstances [their idealized conditions quoted earlier], the fact that francs were used in one location and pounds, yen, or cuzeiros used in others would only constitute a multinational version of the 'veil of money.' Real interest rates would be equal everywhere as would the real price of risk, and capital asset pricing relations !This reference appears in the paper, "A Pure Foreign Exchange Asset Pricing Model," in the Journal of International Economics, volume 7, pages 161-179.