  This paper explores the gain maximization problem of two nations engaging in
non-cooperative bilateral trade. Probabilistic model of an exchange of
commodities under different price systems is considered. Volume of commodities
exchanged determines the demand each nation has over the counter party's
currency. However, each nation can manipulate this quantity by imposing a
tariff on imported commodities. As long as the gain from trade is determined by
the balance between imported and exported commodities, such a scenario results
in a two party game where Nash equilibrium tariffs are determined for various
foreign currency demand functions and ultimately, the exchange rate based on
optimal tariffs is obtained.
