In the recent past, integration of world economy and proliferation of globalization has encouraged organizations to seek expansion beyond their native countries (Frenkel & Johnson 2013, p. 4). In light of this, changes in the foreign exchange rates greatly affects the operations of companies both small and bigger corporations. It is thus imperative for business people and all organizations to fully understand the various foreign exchange regimes that are used in the world. Foreign exchange system affects the operations of all companies but has more effects on the operations of a multinational and it is thus important for a multinational to understand the possible foreign exchange risks as well as economic implications that are associated with various foreign exchange systems (Goldstein & Lardy, 2013). The aim of this paper is to look at the various foreign exchange systems and the risks and economic implications that multinationals operating in countries with the different systems is likely to encounter. A detailed explanation of purchasing power parity (PPP) as well as Interest Rate Parity (IRP) and the evidence that is there for and against the theory is given in the second part of the paper.