Foreign Exchange Manual, 2000

For business information, annual reports, laws, ordinances, regulations and articles.

CHAPTER V
FOREIGN CURRENCY ACCOUNTS OF AUTHORISED DEALERS
AND SALE OF FOREIGN CURRENCIES

1. Introduction :-
This chapter sets out the regulations governing purchase and sale of foreign currencies by Authorised Dealers in the inter-bank market in Pakistan as well as their purchase from and sale to the State Bank and overseas branches and correspondents.

2. Accounts in Foreign Currencies :-
Authorised Dealers are permitted to open and maintain account in all fully convertible currencies with their branches and correspondents aboard, subject to the condition that opening of every new account should be reported to the director, Foreign Exchange Department by a letter giving the name and address of the foreign branches or correspondent with whom the account has been opned and the currency of the a.c account.
Ref F.E. Circular No. 15 dated 22nd June 1999

Ref F.E. Circular No. 53 dated 21st December 1998.

3. Foreign Currency held at the disposal of the State Bank :-
Foreign currency balances of Authorised Dealers, whether operated by their Head/Principal Offices or branch offices, shall at all times be held at the disposal of the State Bank who may give such directions for their disposal as it may consider necessary and expedient. The State Bank may direct Authorised Dealers at any time to sell either ready or for forward delivery, foreign currency or currencies held by them to the State Bank or to such other person or persons as the State Bank may direct.

4. Exchange Position :-
The State Bank fixes from time to time for each bank authorised to deal in foreign exchange limits for open exchange position and balances on an overall basis for all currencies, after taking into account its day to day operational requirements. These limits are intended to cover the positions of all the branches in Pakistan of each bank who may distribute the limit amongst its various branches in Pakistan authorised to maintain independent foreign currency accounts. Head/Principal Offices of Authorised Dealers should ensure on day to day basis that these limits are not exceeded. If they find that the foreign currency balances are exceeding the prescribed limit, they must sell foreign currency ready. If necessary, they may cover their position by purchasing the foreign currency for forward delivery within the prescribed limit for open position, corresponding to the maturities of their own future obligations. Authorised Dealers should maintain square or near exchange position.

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5. Calculation of Exchange Position :-
Exchange position on a particular day is the extent to which an Authorised Dealer has bought or sold foreign currencies on its own account without covering contracts with its constituents, the State Bank or other Authorised Dealers. Position can be calculated by adding to its currency holding the total of its contracted purchases and deducting therefrom the total of its contracted sales. If an Authorised Dealer has no currency holding but is overdrawn with its correspondents abroad, the position can be calculated by deducting its contracted purchases from the total of its overdrawn balance and its contracted sales. If its spot holding plus purchases exceed its sales or if its purchases exceed the combined total of its overdrawn balances plus its sales, it is an overbought position and vice versa. Open position should be worked out on the basis of opening balance and other transactions as per the books of the Authorised Dealer.

6. Over-bought or Over sold Position in Excess of Prescribed Limit :-
Authorised Dealers are required to report to the State Bank their positions in respect of all foreign currencies as per their books as at the close of business of each month. Returns should be sent by the 7th of the following month in the prescribed form (Appendix V-4). While currency-wise position as on the last working day of the month should be indicated in the statement, the daily figures to be given in the proforma on reverse of the statement would show the consolidated position in all currencies.

7. Balances in Foreign Currencies :-
While Authorised Dealers are required to maintain their exchange position in each currency square or near square, they must also attempt to keep their ready balances to the minimum in line with their operational requirements avoiding heavy ready purchases against forward commitments. Covering forward sales to public by ready purchases is not permitted. On each day the balances in foreign currencies should not exceed the limits prescribed by the State Bank. Head-Offices of Authorised Dealers will submit to the Senior Deputy Director (General), Exchange Control Department, State Bank of Pakistan, Central Directorate, Karachi a monthly statement of balances held abroad as per the local books as well as the books of Authorised Dealers’ overseas branches/foreign correspondents in the prescribed form (Appendix V-5) by the 15th of the following month. While currency-wise position as on the last working day of the month would be indicated in the return as per the local books as well as the books of overseas branches/foreign correspondents, the daily figures to be given in the proforma on reverse of the return, would show the aggregate of the balances held abroad in all foreign currencies as per the local books of Authorised Dealers. If for any reasons beyond the control of Authorised Dealers, the balance as per their local books is in excess of the prescribed limit, Authorised Dealers must explain the reasons for such excess in a separate letter which should be attached to the return.

8. Purchase and Sale of Foreign Currencies :-
Authorised Dealers may freely purchase foreign currencies as there are no restrictions on inward remittances. All sales of foreign currencies must, however, be in cover of genuine transactions approved by the State Bank or by the Authorised Dealers under powers delegated to them.

9. Inter - Bank Transactions
Authorised Dealers may freely buy and sell foreign currencies from and other Authorised Dealers in Pakistan within the permissible exposure limit.

10. Purchase of U.S. Dollars from and their Sale to the State Bank :-
Authorised Dealers may freely buy U.S. dollars from and sell them to the State Bank both ready and forward.

11. Purchase and Sale of Foreign Currency from and to Banks' Overseas Branches and Correspondents :-
Authorised Dealers may freely purchase both ready and forward one foreign currency against another from their overseas branches and correspondents in order to cover their positions. Purchase of foreign currencies from and their sale to banks' overseas branches and correspondents against Rupees may be made in accordance with the provisions of Chapter VII.

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