ABSTRAK :rnrnThe main purpose of this study is to analyze the movement of Indonesian Rupiah against United States Dollar and its determinants. Frankel-Dornsbusch Overshooting is used as theoretical basis. It is stated that when an exchange rate is depreciated proportionately exceeding money growth, it can be said that the exchange rate is overshoot. In other words, its value is fundamentally undervalued. By using data fromrnthird quarter 1997 through fourth quarter 2004 and using error correction model as its methodology, it can be concluded that in the short-run, Indonesian rupiah was over-shooted. Furthermore, I also found that in the long-run Rupiah was converged to its equilibrium value. These findings indicate the need of policy that can control the volatility of money growth, especially in the short-run horizon. Capital control is one of several policies that can be effective to maintain the stability of money growth and subsequently the exchange rate.