Since the development of the capital asset pricing models, identifying the determinants of asset returns and risks have been considered by researchers. Exchange rate is one of the most important variables, which has close relationship with financial markets. Exchange rate movements affect stock prices through changing the value of firm’s assets. Increasing exchange rate due to the recent economic sanctions of the central bank of Iran by SWIFT highlights the exchange rate role in financial markets. In this study, daily data from January 1st, 2009 to July 31st, 2013 was used within a framework of Panel Vector Autoregression (Panel VAR) model to analyze the effects of exchange rate shocks on financial markets. Main results are: 1) according to the flow-oriented models, in this study exchange rate leads the stock price and the response of the stock index would be positive to exchange rate shock, 2) in the situation of economic sanction, foreign currency acts as real asset, and 3) in the situation of economic sanction, the effect of exchange rate shock on stock index would be negative in long-term, which would be a cause of dependency of domestic products to imported machinery and materials.