CHAPTER II: LITERATURE REVIEW2.1 IntroductionThis chapter reviews the literature on exchange rate, stock market, the relationship between exchange rate and stock price. Little of this literature, most studies discuss the relationship between stock price and exchange rate. 2.2 Exchange rate The development of the International Finance Corporation is an important trend worldwide. The exchange rate is the most important adjustment lever for international trade. Since the national production of goods is calculated based on the cost of the national currency, to compete in the world market, the cost of products must be related to the exchange rate. The level of the exchange rate also directly influences the cost and price of the product, and one of the most important factors in the competitiveness of raw materials concerns the exchange rate in international markets. Grennes (1975) investigates in the field of finance, the exchange rate is how much one currency is worth in terms of the other between two currencies. It is the value of a foreign nation's currency in terms of the home nation's currency. David P.（1971）in international business we can compare different commodity prices in different countries, because the exchange rate plays an important role in economic development.Jorian(2008 ) In the last decade, the world exchange rate regimes become are emptied, the result is the abandonment of the soft pegging of the exchange rate, but the influence of the fixed exchange rate and the floating exchange rate increases significantly. In the open economy, the exchange rate is a very important economic variable and the fluctuation of the exchange rate means that they have a wide influence on the economic field. Mess and Rogodd (1984) in their recent finding, when the exchange rate changes, it will directly affect the i...... middle of the paper ......its country, such as quota, constraint and so on. Demand for this country's currency will increase. Irandoust (2002) concludes that regardless of the type of theory, it is not possible to explain the various phenomena of foreign exchange markets, no one has even claimed to use a theory that can accurately predict and determine the future. performance of the foreign exchange market. In fact, the impact of a country's exchange rate has many factors, such as countries' economic situation, monetary policy, interest rate policy, stock market policy and more paroxysmal events, because these factors have different effects on the exchange rate, for this reason, they increase the volatility of the foreign exchange market. Increased financial market risk influenced by exchange rate effects, at the same time offers investors a healthy return spread and greater profit space.