It is hypothesized to examine the relationship between foreign exchange and economic development that (i) the level of economic activity in less developed countries (LDCs) is constrained, at least, in part by the foreign exchange availability, (ii) different components of foreign exchange may differ in their impacts on the imports of consumer, intermediate and capital goods and (iii) the effects of different components of foreign exchange may spread over a period of more than one year. We have tested these hypotheses estimating the relationship between the three categories of imports and two sources (exports and foreign capital inflow) of foreign exchange. It appears that the data from the Bangladesh economy covering the period 1960/61-1979/80 support these hypotheses.