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In this article, the linkage between the foreign currenyexchange rate and the stock return in Iran is examined byfocussing on two theoretical and experimental models. The theoretical model proves that the foreign currency exchange rateis directly linked with the profitability and stock return of an economic concern in an imperfect competitive situation (where market is strong and firm). When an economic concern raises the level of exports, its profits will rise along with the increase of foreign currency exchange rate.
Such assumptions have been experimented by using the information gathered from forty four companies being accepted at Tehran Stock Exchange. Experiments show that changes in foreign currency rates have direct relationship with a company's stock return in Iran with an interruption of six months. There is a stronger relationship between foreign currency exchange rates and stock return in exporting companies in contrast to the non-exporting firms.