In this chapter we take up for discussion three issues related to exchange rates in developing countries. The first is the concept and measurement of real exchange rates as well as exchange rate misalignment and its impact upon economic growth. The second topic taken up is factors that are important in deciding upon the exchange rate regime for developing countries. We then discuss the problem of dilemmas of policy in the face of sustained capital inflows. In Chapter 17 we discuss the problem of policy design to prevent exchange rate crises.