1. General :-
Authorised Dealers may enter into contracts for purchase or sale of foreign currencies subject to the regulations set out in this chapter. Before entering into a forward exchange contract with the public, the Authorised Dealers should satisfy themselves about the bonafides of the applicants and ensure that forward cover is required for genuine and firm transactions of approved nature. For this purpose they should call for verification, the cable offers and acceptance and/or formal contracts duly signed by the exporters/importers and/or letters of credit. Originals or photo copies of these documents should be retained by the Authorised Dealers. The number and date of the forward contract should be endorsed by the Authorised Dealers under their seal and signature on all the copies including the originals, even in cases where these are returned to the applicants. Similarly, Authorised Dealers should indicate on the relative forward contract the particulars of the documents which have been verified by them and on the basis of which the forward contract has been booked.

2. Forward Quotations :-
Forward buying rates will be quoted for fixed delivery during the third, fourth, fifth and sixth months. For example 3 months forward purchase made on 28th March, 1994 can be taken up any time during 28th May, 1994 to 27th June, 1994. Forward selling rates will be quoted for optional delivery upto three, four, five and six months.
[Ref F.E Cir. No.26 dated 30-9-97]

3. Forward purchase of foreign exchange against export of goods :-
In the case of export of goods from Pakistan, against a firm contract Authorized Dealers may purchase foreign currencies forward for delivery upto four and a half months from the last date of shipment as provided in the contract/EPC form/letter of credit. Such purchases may be made at any time from/after the date of contract/letter of credit. Purchases in case of exports on consignment sale basis, may be made at any time after the shipment has taken place, and the last date of delivery should not fall after four and a half months from the date of shipment. In both the cases of exports against firm contract and on consignment basis where State Bank's prior approval has been obtained for the realization of sale proceeds beyond four months, the purchase contract may provide for deli-very upto fifteen days after the extended date for realization but not exceeding six months.

4. Forward Sale of Foreign exchange against import of goods:-
Authorised Dealers can book forward covers against usance import bills at any time before their maturity dates but the maturity dates of the forward covers should not extend beyond the maturity dates of the relative bills.

5. Forward transactions between Authorised Dealers :-
Authorized Dealers may freely enter into forward transactions with each other, provided such sales/purchases are in cover of transactions entered into by them with their customers.

6. Forward transactions with overseas branches and correspondents :-
Authorized Dealers may enter into forward transactions with their overseas branches and correspondents in respect of currencies other than U.S. Dollar, in cover of transactions entered into by them with their customers.

7. Extension of forward contracts :-
It would be permissible for the customers to initially enter into transactions for the ma maximum period as permitted vide preceding paragraphs 3 and 4. It would be permissible to extend the contracts on roll over basis if the export proceeds have not been realized and extension in the period of realization has been granted by the State Bank prior to the date of maturity of the original contract, or import bill is not paid in accordance with the terms of letter of credit/registered contract. Such extensions would be made by closing out the original contract and booking of a frosh contract at the new rate.

8. Discounting of usance export bills :-
In case an exporter books forward cover but also comes to a bank discounting of the usance bill, the bank will discount the bill at the relative forward cover contract rate minus the discount at the rate for bill buying prescribed by the Foreign Exchange Rates Committee provided the bill presented for discounting during the option delivery period only. With the discounting of the bill forward cover contract shall be deemed to have been taken up to the extent of the amount of the bill discounted.

9. Rates at which forward contracts may be closed out:-
Forward contracts which are not taken up may be closed out on the date of maturity. In the case of closure of forward exchange contracts, the difference between the booked forward rate excluding the element of usance, and the T.T. clean spot rate for the counter transaction ruling on the date of the closure will be recoverable from or payable to the customer, as the case may be. The State Bank reserves the right to direct under sub-section (2) of section 4 of the Foreign Exchange Regulation Act, that all forward contracts or any particular forward contract or class of forward contracts shall be closed out at the rate ruling on the day on which they were booked or on any other day within the currency of the contract(s) as its discretion and not necessarily at the rates riding on the day on which they are closed out.

10. Forward sales in respect of repatriable foreign currency loans:-
Authorized Dealers may sell foreign currencies forward in respect of repatriable foreign currency loans, for six months delivery. Such contracts may be extended in the manner laid down in paragraph 7.

11. Cancellation of forward contracts :-
If in any particular case or cases State Bank is not satisfied with the transactions for which forward cover has been booked, it may direct the Authorized Dealer to cancel the forward contract immediately or within such period as it may prescribe.

12. Switch over of forward contracts in cover of imports :-
Where the foreign beneficiary of a letter of credit is changed in accordance with due instructions contained in para 4(ii) Chapter-XIII, Authorized Dealers may allow forward contract booked in respect of the original letter of credit to be used for the new letter of credit provided the currency and the description of the commodity of the new letter of credit are the same as of original letter of credit.

13. Booking of forward cover outside Pakistan :-
With a view to widening the scope of the facility made available through the above F.E. Circular, it has been decided to permit the Authorized Dealers in Pakistan to extend the facility from within their net open position. The modus-operandi in this regard shall be as undo:

(i) The exporters will approach the Authorized Dealer for forward sale of third currency against forward purchase of US$.

(ii) The Authorized Dealer will book forward sale of US$ against forward purchase of the relative third currency.

(iii) The Authorized Dealer will simultaneously sell forward the relative third currency in inter bank market in Pakistan/in the international market against forward purchase of US$.

(iv) Upon realization the Authorized Dealers will make payment of rupee equivalent of US$ amount to the exporters at he ready rate.

(v) In case the contract booked by the Authorized Dealer outside Pakistan envisaging forward purchase of US$ against forward sale of the third currency is not taken up due to non-delivery of the third currency by the exporters, resulting in closing out of the contact and payments by the Authorized Dealers, such remittance will be made against encashment of FEBCs in Pakistan rupees.

(vi) When a forward cover is booked in accordance with the permission given above, the exporter should submit a copy of the cover note to the Authorized Delaer in Pakistan through which the export documents are proposed to be sent abroad, and declare on the 'E' form, the value of the goods both in the contracted currency as will as its equivalent in U.S. Dollars at the booked rate. The exporter will also furnish a copy of the cover note to the Authorized Dealer to which U.S. Dollars amount representing export proceeds will be sold. The Authorized Dealer while reporting the export receipt in its monthly foreign exchange returns, would attach the cover note with the triplicate 'E' form.

14. Forward covers against foreign currency accounts :-
Persons maintaining foreign currency account with the Authorized Dealers in Pakistan can sell forward the balances held in their accounts to the importers in connection with import letters of credit/indents, Proforma invoices, orders registered with the Authorized Dealers for imports on consignment basis. The procedure to be followed in this regard is as under:

(i) The importer and foreign currency account holder (hereinafter called the "seller") will agree to the deal under intimation to the Authorized Dealer. For smooth conduct of transaction. it is nccessary that the importer and seller are the customers of the same Authorized Dealer.
(ii) The seller will authorizethe Authorized Dealer to mark a lien on the respective foreign currency account to the extent of the amount involved.
(iii) The Authorized Dealer will make separate arrangement with the importer for recovery at the opportune time of rupee equivalent at the forward rate agreed to between the importer and the seller.
(iv) As and when payment is required to be made for imports:

(a) Authorized Dealer will debit the foreign currency account of the seller, take delivery of the amount from State Bank of Pakistan by lifting the cover - where cover obtained, take the foreign currency amount in the Nostro account and report the same as inward remittance under the code meant for Home Remittance and credit rupee equivalent at the forward rate to the seller's non-convertible rupee account.

(b) Simultaneously, the Authorized Dealer will lodge the documents in its books at the forward rate agreed to between the importer and seller. The rupee recoveries from the importers will be made by the Authorized Dealer as per its own arrangement.

(c) Authorized Dealer will report the import transaction in the monthly foreign exchange return in the normal way on Form ‘I’ - Schedule E-2.

(v) In case the importer fails to take up the contract arranged with the seller, it will be closed out and the exchange rate differential settled on the maturity date in the same manner as other forward sale contracts are closed out e.g. in accordance with para 9 of this Chapter.

(vi) The provisions of para 2, 4 & 7 of this chapter will, ipso-facto. apply to the forward contracts made in terms of this para.