CHAPTER II: LITERATURE REVIEW2.1 IntroductionThis chapter reviews the literature on exchange rate, stock market, relationship between exchange rate and stock prices . Few of this literature, majority of studies discuss the relationship between stock price and exchange rate.2.2 Exchange rateThe development of International Finance Corporation is an important trend of the world. The exchange rate is the main lever for adjusting international trade. As the national production of goods is calculated by the cost of the national currency, to be competitive in the global market, the cost of products must be linked to the exchange rate. The level of exchange rate also directly affects the cost and price of the product and one of the most important factors of commodity competitiveness is the exchange rate in international markets. Grennes (1975) studies in the field of finance, the exchange rate is how much one currency is worth in relation to the other between two currencies. It is the value of a foreign country's currency in relation to the home country's currency. David P. (1971) In international trade, we can compare different prices of raw materials in different countries because the exchange rate plays an important role in economic development. Jorian (2008) Over the past decade, global exchange rate regimes have deepened, the result has been the abandonment of flexible exchange rate, but the influence of fixed exchange rate and floating exchange rate has strongly increase. In an open economy, the exchange rate is a very An important economic variable and the fluctuation of the exchange rate means that it has a wide influence on the economic field. Mess and Rogodd (1984), in their recent finding, when the exchange rate changes, it directly influences the middle of the paper. ......its country, like share, linked and so on. This will increase the demand for that country's currency. Irandoust (2002) concludes that no matter what kind of theory, it cannot explain various phenomena of foreign exchange markets, no one even said that he used a theory that can accurately predict and determine the future. trend of the foreign exchange market. In fact, the impact of a country's exchange rate depends on many factors, such as the country's economic situation, monetary policy, interest rate policy, stock market policy and a more paroxysmal event, because these Factors have different effects on the exchange rate, for this reason, increase the volatility of the foreign exchange market. The increased risk in financial markets, affected by exchange rate effects, at the same time provides investors with a healthy yield spread and increased profit space..