The main objective of this chapter is to identify the effect of major currency exchange rates on the prices of internationally traded commodities. For commodities that are traded continuously in organized markets such as the Chicago Board of Trade, a change in any exchange rate will result in an immediate adjustment in the prices of those commodities in at least one currency involved in the trade and perhaps in both currencies if both countries are ‘large’. For example, when the dollar depreciates against the Deutschemark, dollar prices of commodities tend to rise (and DM prices fall) even though the fundamentals of the markets – all relevant factors other than exchange rates and price levels – remain unchanged. The power of this effect is suggested by the events surrounding the intense appreciation of the dollar from early 1980 until early 1985, during which time the US price level rose by 30 per cent but the International Monetary Fund (IMF) dollar-based commodity price index fell by 30 per cent, and dollar-based unit-value indices for both imports and exports of commodity-exporting countries as a group declined by 14 per cent. The explanation for this anomaly may lie in the exchange rate: with respect to the DM, for example, the dollar appreciated by more than 90 per cent in nominal terms, and by 45 per cent in real terms.