The exchange rate poses an awkward problem; if the same goods are produced by and traded between different countries and if international trade is competitive, the prices of such goods in any country will be the same, regardless of the country of origin. The law of one price must hold within each country; exchange rate movements cannot alter the relative prices in the same country of competing goods according to country of origin. There is, then, no general a priori reason why purchasers in a given country should choose the product of one country rather than the competing product of another and the standard argument, that changes in exchange rates alter the volumes of imports and exports through such relative price changes, cannot hold for such goods. The conclusion is that, if most of the imports and exports of a country are goods that have international competition, there is no reason that exchange rate changes will have predictable effects on its balance of trade