ABSTRACT
An important element of trade is the markets to which a country exports and from which it imports. The role that the exchange rate plays in bilateral trade depends on the interplay of economic relations between jurisdictions, which includes agreements and special incentives offered by each economy to specific sectors. Findings in this chapter show that while demand measured by national incomes is an important factor, for some trading partners, exchange rate changes affect bilateral trade. Here, too, the role of product composition of bilateral trade is examined in detail. Tracing the changes, if any, in product composition for major trading partners across the past decade and half, one sees that, indeed, commodities that are traded determine the role of the exchange rate.
