In this study it is tried to elicit banking sector performance according to Key Performance Indicators (KPI) provided by International Monetary Fund (IMF) on one side, and integration of Pakistan with its ten largest trading partners under real interest parity hypothesis (RIPH) framework through unit root test on the other side. Secondary data of ten years is taken for banking sector from 2005 to 2015 and for RIPH analysis short term interest rate data is used from January, 1990 to December, 2014. Descriptive analysis indicates that banking sector in Pakistan is performing according to the KPI’s, set by IMF. To analyze the RIPH for Pakistan, five unit root tests of different powers are used on Real Interest Differential (RID) series, which include Augmented Dickey Fuller (ADF), Dickey fuller – Generalized Least Square Elliott, Rothenberg and Stock (DF GLS-ERS), Kwiatkowski–Phillips–Schmidt–Shin (KPSS), Zivot Andrews test for structural breaks and Beaulieu and Miron Monthly unit root test. Results of four out of five tests shown mean reverting behavior of RID series but not the Beaulieu and Miron. Supervisor:- Dr. Hasan Muhammad Mohsin