I've been getting alot of link exchange requests lately. We have a link directory that was posted on the site when I took it over from awhile back. Alot of the exchange requests that I'm getting are: link to this site from your site and we will place a link over here for you on this other site, which is usually some web directory with tons and tons of links and is completley unrelated to the site that is requesting the link from me.
Am I doing the right thing be declining these link requests?
You are going to get irrelevant link requests.. its the nature of the web. Consider an editor based link management software that will store the pending links in a queue for your approval or rejection. That way you don't miss opportunities from quality sites relevant to your own.