The present study investigates non-linear co-integration along with asymmetric adjustment to explore long-run purchasing power parity (PPP) in three major trading partners (United States, China and Germany) of Pakistan. The monthly data set is used in this study for the period 1982:1 to 2013:12. Currently, in Pakistan flexible exchange rate regime is prevailing. The stability of exchange rate is of grave importance as being indicator of economic performance. To examine the behavior of nominal exchange rates the ESTAR and LSTAR models are used by following the testing procedure of Terasvirta (1994). The results support the nonlinear of exchange rate series. The asymmetric behavior of exchange rate allows to execute the threshold cointegration suggested by Enders and Siklos (2001). The results suggests that nonlinear form of long-run PPP hold in case of Pak-China. Therefore, Trading will be more beneficial if exchange rate is varied with respect to major trader partner rather than only with US dollar. If rupee exchange rate is attached closely with US dollar where’s parity hold with Euro, Yuan currencies fluctuation and there are misaligned with the US dollar in such a case risk of overvaluation or undervaluation increases. Supervisor:- Dr. Hafsa Hina