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For business information, annual reports, laws, ordinances, regulations and articles. |
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CHAPTER
IV
FORWARD EXCHANGE FACILITIES
General.
(i) Authorised Dealers may enter into
contracts for forward 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 offers and acceptance and/or formal contracts duly
signed by the exporters/importers and/or letters of credit. Originals or photocopies
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.
(ii)orward cover may be provided even if the letter of credit has been opened
through another Authorised Dealer or contract etc. has been registered with
or export documents have been handled by another Authorised Dealer. Such cover
would be provided on the basis of a certificate from the concerned Authorised
Dealer confirming, inter-alia, that no forward cover has been provided by it
against the transaction.
2. Forward Quotations.
Authorised Dealers may provide forward cover for exports, imports, foreign private
loans covered under paragraph 8, Chapter XIX (on roll-over basis) and repatriable
foreign currency loans mentioned in paragraph 15, Chapter XIX of the Manual
(excluding loans obtained by foreign contractors and branches of foreign companies)
for any duration, subject to any restriction mentioned in subsequent paragraphs,
in accordance with the conditions prevailing in the market.
3. Forward purchase of foreign exchange against export of goods.
(i) In the case of export of goods
from Pakistan against a firm contract, Authorised Dealers may purchase foreign
currencies forward for delivery upto six 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/EPC form/letter of credit.
Purchases in case of exports on consignment sale basis, may be made at any time
after the shipment has taken place but the last date of delivery should not
fall after six 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 realisation of sale proceeds beyond
six months, the purchase contract may provide for delivery upto fifteen days
after the extended date for realisation.
(ii) In the case of export of goods to be invoiced in
any convertible currency other than U.S. Dollar, it is permissible for the Authorised
Dealers to buy forward the concerned currency in terms of US Dollar, if the
exporter wishes to cover only such risk and to carry dollar versus rupee risk
himself. On realization of such proceeds the equivalent U. S. Dollar amount
at the booked rate will not be delivered but converted at the spot rate and
the rupee equivalent will be paid to the exporter. In case, if exporter does
not want to carry Dollar versus Rupee risk himself and wants to cover the same
in the forward market, the same would also be permissible. The Authorised Dealers
will conduct such transactions within their approved ‘Exchange Exposure'
limits.
4. Forward sale of foreign exchange against import of goods.
(i) Authorised Dealers may sell foreign
currencies forward in cover of imports into Pakistan on cash basis under letters
of credit or registered contracts. The sale contract may be booked at any time
after opening of letter of credit or registration of contract. A forward sale
may also be made after the receipt of an import bill drawn on usance basis,
but such a sale may not provide for delivery beyond the date of maturity of
the bill.
(ii) In the case of import of goods invoiced in any convertible
currency other than U. S. Dollar, it is permissible for Authorised Dealers to
sell forward the concerned currency in terms of US Dollar, if the importer wishes
to cover only such risk and to carry dollar versus rupee risk himself. On the
date of such payment, the equivalent US Dollars amount at the booked rate will
not be claimed but converted at the spot rate and the rupee equivalent would
be claimed from the importer. In case, if importer does not want to carry Dollar
versus Rupee risk himself and wants to cover the same in the forward market,
the same would also be permissible. The Authorised Dealers will conduct such
transactions within their approved ‘Exchange Exposure’ limits.
(iii) Forward
cover facility will not be made available in respect of the following: -
a.Import of crude oil and POL products.
b. Imports by Federal or Provincial Government Departments or Corporations
set up by Government and Industrial undertakings in which Government holds majority
interest other than TCP and those public sector undertakings which export part
of their products.
c.Sale of foreign exchange to overseas bank's branches and correspondents to
cover rupee bills negotiated by them under letters of credit established by
Authorised Dealers in Pakistan.
5. Forward sale against investment by Non-Residents.
Authorised Dealers may sell foreign currencies forward to non-residents for
portfolio investment made by them in rupee denominated shares and securities
on repatriation basis out of funds remitted from abroad, as permitted vide Chapter
XX of the Manual. The forward cover can also be provided on the date of conversion
of foreign currency into rupees, pending their investment.
Such sales would be made only for the amount brought in or the face value
of the security, whichever is higher. No forward cover will be provided for
dividend/interest/coupon income. Forward cover will also not be provided for
Foreign Direct Investment. The maximum period of sales should be twelve months,
which may be extended in the manner laid down in paragraph 9.
(ii) A forward sale may also be made by an Authorised Dealer other than
the one maintaining the Special Convertible Rupee Account or providing custodial
service for investment provided the customer gives a declaration that the investment
has been made on repatriation basis and that cover has not already been obtained
from any other Authorised Dealer.
6. Forward transactions between Authorised Dealers.
Authorised Dealers may freely enter into forward transactions with each other,
provided their ‘Exchange Exposure'
at the end of the day remains within the prescribed limits.
7. Forward transactions with overseas branches and correspondents.
Authorised 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.
8. Forward cover to the Investment Banks, Leasing and Modaraba Companies.
Authorised Dealers may provide forward cover to the Investment Banks, Leasing
Companies and Modaraba Companies holding restricted Authorised Dealer's Licences
issued by the State Bank of Pakistan, in respect of the funds mobilized by them
from abroad against issuance of Certificates of Investment and surrendered to
the State Bank provided they have not obtained forward cover from the State
Bank.
9. Extension of forward contracts.
It would be permissible to extend the contracts on roll over basis even for
less than one month if the export proceeds have not been realised and extension
in the period of realisation has been granted by the Authorised Dealer/State
Bank 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 fresh contract at the new rate.
10. Discounting of usance export bills.
In case an exporter books forward cover and presents thereagainst an export
bill for discounting, the Authorised Dealer may treat discounting of the usance
or sight bill as delivery against the forward contract provided such bills are
presented for discounting during the option delivery period only. In all other
cases the foreign currency receipts in respect of discounted bills will not
be considered as delivery against forward contract and the Authorised Dealer
will discount the bill at its current applicable rate and close out the contract
on maturity.
11. Rates at which forward contracts may be closed out.
(i) 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, if any, and
the prevailing spot rate for the counter transaction on the day of the maturity
will be recoverable from or payable to the customer, as the case may be.
(ii) The State Bank
reserves the right to direct under sub-section (2) of section 4 of the Foreign
Exchange Regulation Act, 1947 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) at its discretion and not necessarily at the rates ruling
on the day on which they are closed out.
12. 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 Authorised Dealers
to cancel the forward contract immediately or within such period as it may prescribe.
13. Switch over of exchange contract in cover of imports/exports.?
(i) Where
the foreign beneficiary of a letter of credit is changed in accordance with
the instructions contained in Chapter XIII, Authorised Dealers may allow the
forward foreign exchange 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 the original
letter of credit.
Where delivery against a forward sale made by an exporter against a particular
contract or letter of credit cannot be made due to non-shipment, the exporter
may give delivery out of export proceeds repatriated by him against other contract/letter
of credit.
14. Forward covers against
foreign currency accounts.
Persons maintaining foreign currency
accounts with the Authorised 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 Authorised 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 Authorised
Dealer. For smooth conduct of transaction, it is necessary that the importer
and seller are the customers of the same Authorised Dealer.
(ii) The seller will authorise the Authorised Dealer to mark a lien on
the respective foreign currency account to the extent of the amount involved.
(iii) The
Authorised 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.The
Authorised 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 has been obtained, take the foreign currency amount in the Nostro account,
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 Authorised 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 Authorised Dealer as per its own arrangement.
c. The Authorised 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 paragraph 11 of this chapter.
(vi)The provisions of paragraphs 4 & 9 of this chapter will, ipso-facto,
apply to the forward contracts made in terms of this para.
