THERE EXISTS CONSIDERABLE LITERATURE on the efficiency of foreign exchange markets, with most of the empirical work supporting the hypothesis that the foreign exchange markets are weak form efficient.1 In some countries, however, trading in foreign currencies takes place in black markets which are the result of restrictions placed on the foreign sector.2 The importance of these markets in sustaining the illegal import and export of goods and assets, as well as illegal capital flows, has been growing in the past few years.3 In this paper, market efficiency tests are performed on the black market exchange rates in India, Taiwan, and South Korea. It is quite conceivable that black markets may not be efficient because the information about prices and market participants is generally imperfect: the markets tend to be thin and often segmented, and the transaction costs, as measured by the buy-sell differential, tend to be high. All these factors could hinder efficient adjustment of exchange rates to new information.4 A test of market efficiency is a test simultaneously of efficiency and of the assumptions of market equilibrium. The theory underlying financial efficiency tests has been omitted here since it is well-known and accepted. Weak-form tests of market efficiency are based on the autocorrelation functions of rates of return on currency positions, on nonparametric tests like the runs analysis, and on mechanical trading rules applied to historical currency prices in the black market. Finally, the cross-correlations between the changes in the black market rate and changes in the official exchange rate are examined to see if the black market exchange rate predicts the movements in the official rate.