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Effects of the incomplete signal exchange on the dynamic range performance of type II wavelength exchange (WE II, i.e. both pumps are in anomalous dispersion region) are investigated analytically and experimentally. The dynamic range here is defined as the tolerable operational range of the signal power to maintain a nearly complete WE performance. We studied the case of equal signal powers (balanced signal powers) as well as the case of unequal signal powers (imbalanced signal powers). It is demonstrated that the beating between exchanged signal and residual one and the extinction ratio degradation due to the existence of residual power at original channel is the major source of the signal quality degradation after WE II. The experimental results demonstrated dynamic range ~17 dB with bit-error rate (BER) < 10-9 could be maintained with power penalty of <2 dB in the case of balanced signal powers. In the case of imbalanced signal powers, the dynamic range was > 8 dB with the power penalty incurred of ~ 2 dB in the worst case.