Iran Finance Association Iranian Journal of Finance 2676-6337 10 1 2026 01 01 Impact of Exchange Rate Fluctuations on the Financial Soundness of Iranian Banks: The Role of Bank Size and Soundness Levels 63 118 244433 10.30699/ijf.2026.517792.1512 EN Azam Ahmadyan Assistant prof, Department of Banking, Monetary and Banking research institute, Tehran, Iran. Journal Article 2025 04 19 This empirical study investigates the impact of exchange rates on the financial soundness of Iranian banks from 1996 to 2023, utilizing financial soundness indicators, financial statement data, and macroeconomic variables. The selection of Iran is based on the significant role of exchange rate fluctuations in the financial soundness of its banking sector. Financial strategies and risk management adaptations are required as a result of these fluctuations, which have an impact on profitability, liquidity, and lending behavior. In contrast to the existing literature, which focuses on specific financial soundness indicators, this research establishes a composite metric informed by the International Monetary Fund's financial soundness indicators. This metric enables the analysis of exchange rate effects across a range of financial soundness levels. The study employs ARDL and quantile methodologies to investigate the differential effects on banks by their scale and the distinct impacts of official and unofficial exchange rates. The findings reveal intricate relationships, including inverse U-shaped dynamics between exchange rates and financial soundness through bank size, as well as varying effects across various quantiles of financial soundness. These insights provide crucial guidance for policymakers and financial institutions in stabilizing the banking sector in the face of economic uncertainties and underscore the necessity of customizing strategies to account for the bank size and the dynamics of exchange rates. https://www.ijfifsa.ir/article_244433_84c43991426c7538f679be869062f3c7.pdf