Exchange rate is one of the macroeconomic variables that could influence banks profitability; itrnmay affect directly or indirectly. Foreign exchange risk arises when a bank holds asset orrnliability in foreign currencies and impacts the earnings and capital of banks due to fluctuationsrnin the exchange rates. The objective of the study was to examine the effect of foreign exchangernrisk management practice adopted by private commercial banks in Ethiopia on their financialrnperformance. An explanatory research design was used for the study, with the target populationrnof all the 16 private commercial banks in Ethiopia. The study used both primary and secondaryrnsource of data for the analysis. The primary data was collected by use of questionnaires and fivernpoint likert scales was used. The secondary data was collected by use of published reports asrnaudited financial statements of private commercial banks. For this study there are fourrnindependent variables: FX policies and procedures, management information system, internalrncontrol system, the role of top management and uses financial performance (ROA) as arndependent variable. The researcher employed research analysis tool STATA. Regression analysisrnwas used in the study and the results of the study were presented using tables and graphs. Thernresearch result found FX policies and procedures; internal control system and the role of toprnmanagement have positive significant effect on financial performance of private commercialrnbanks whereas, management information system was found to have positive but statisticallyrninsignificant effect on financial performance of private commercial banks. The studyrnrecommended private commercial banks to have continuous review of foreign exchange riskrnmanagement practice they adopt and should give more attention to risk management in order tornderive greater benefit from their risk management efforts.