The paper examines the dynamic relationship and volatility spillovers between the stock market and the foreign exchange market in Pakistan using weekly data from 02 July, 1997 to 04 July 2012. We have used Johansen cointegration test to determine long run relationship between stock price index and exchange rate. The result lends no support for the presence of long-run relationship between the stock price index and exchange rate. Furthermore, volatility spillover is modelled through bivariate EGARCH framework. The result from the EGARCH models reveals two-way volatility spillovers. The returns of one market are affected by the volatility of other market. Particularly, the returns of the stock market are more sensitive to the exchange rate returns as well as the volatility of foreign exchange market. Furthermore, the returns in the foreign exchange market are also affected by the stock market returns and the volatility of stock market returns. Overall, the results suggest that there is strong link between the volatility of foreign exchange market and the volatility of returns in stock market in Pakistan.