The goal of this investigation was to explore the role social competence plays in peer group relations. Social competence, as based on exchange theory, was "operationalized" as including high levels of interpersonal positiveness, and accuracy in perceiving one's social status. Also explored was the extent to which satisfaction is a consequence of competence and social status. A total of 50 fifth-graders were interviewed, providing data in four domains: (1) sociometric status; (2) perceived sociometric status; (3) loneliness and social dissatisfaction; and (4) interpersonal positiveness in different social situations. Results indicated that unpopular children were more dissatisfied and lonely, and less interpersonally positive, than average or popular classmates. Further, even though all the children were fairly accurate perceivers of their social standing, unpopular children overestimated it, while average and popular children underestimated their peer group status. When path analysis was used to test an exchange theory model of social competence and peer relationships, findings indicated that social competence significantly predicted social status which, in turn, significantly predicted social satisfaction. (Author/RH)