The purpose of this study is to test weak and semi-strong foreign exchange markets in South Asia; namely, Pakistan, India, Sri Lanka and Bangladesh. Average monthly spot exchange rates for the US dollar, the British pound and the Japanese yen for the period January 1995 to December 2010 are used. Results indicate that all four foreign exchange markets are consistent with the weak-form of the Efficient Market Hypothesis.
Results of all three tests signify that the movement of one or more exchange rates can be forecasted from the movements of the other exchange rates; implying that in this case the participants of the foreign exchange markets of all four countries can devise strategies for profitable earnings in both the short and long run. These results have important implications for the government policy makers and participants in the foreign exchange markets of the countries included in the present study.