This study analyses the relation between volatilities of exchange rate and inflation by adopting two methods. The traditional method is used to estimate unconditional volatilities and bivariate GARCH model is used for conditional volatility. The traditional test shows that variance of inflation effects the variance of exchange rate. The unconditional volatility test is sensitive to the window size. The study suggests that the relationship between exchange rate and inflation volatilities is bidirectional in nature. Supervisor:-Dr. Wasim Shahid Malik