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This Chapter was updated, revised and renumbered via F.E. Circular 33, dated 28th March, 1994.
Forward Purchase of foreign exchange against export of goods. Forward transactions with overseas branches and correspondents. Forward Sales in respect of repatriable foreign currency loans. Forward Sale in Cover of repatriable Foreign Currency Loans. 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, Authorise 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.
Paragraph 2 Updated via F.E. Circular 34, dated 19th December, 1997. 3. Forward Purchase of foreign
exchange against export of goods.
Paragraph 3 Updated via F.E. Circular 34, dated 19th December, 1997. 4. Forward Sale of foreign exchange
against import of goods. Please refer to F. E Circular No. 42 dated 25th October, 1995 with respect to Forward Cover contracts against Usance Import bills. (i) Authorised Dealers may sell foreign currencies forward in cover of imports into Pakistan against imports under cash for a maximum period of twelve months. Such sales may be made on the basis of letters of credit or registered contracts. The sale contract may be booked at any time but not later than 3 days of receipt of the relevant import bill by the Authorised Dealers and in the case of usance bills may not provide for delivery beyond the date of maturity of the bill. (ii) Forward cover facility will not be made available in respect of the following:-
5. Forward transactions between
Authorised Dealers. Authorised Dealers may freely enter into forward transactions with each other, provided such sales / purchases are in cover of transaction entered into by them with their customers. 6. 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. 7. Extension of Forward Contracts. It would be permissible for the customers / to initially enter into transactions for the 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 contracts, 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. In case an exporter books forward cover but also comes to a bank for discounting of the usance bill, the bank will discount the bill at the rates published by the Committee which are based on spot rates minus the discount. The foreign currency receipts in respect of such discounted bills will not be considered as delivery against forward contract but the contract will be closed out on maturity. 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 day 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) at its discretion and not necessarily at the rates ruling on the day on which they are closed out. 10. Forward Sales in respect of
repatriable foreign currency loans. Authorised Dealers may sell foreign currencies forward in respect of repatriable foreign currency loans, for six months delivery. Such contacts may be extended in the manner laid down in paragraph 7. 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. 12. Switch over of Exchange
Contract in cover of Imports. Where the foreign beneficiary of a letter of credit is changed in accordance with the instructions contained in para 35 (d) of chapter XIII ( This link is not valid as Chapter 13 was updated, revised and renumbered via the reprint of Chapter 13 as published and released by the State Bank of Pakistan (30 September 1994)), 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. 13. Forward Sales in Cover of repatriable Foreign Currency Loans. State Bank provides exchange risk coverage upto 6 months to foreign controlled companies operating in Pakistan, other than branches and wholly owned subsidiaries, who have been permitted to raise repatriable foreign currency loans for their requirements of working capital, on payment of a fee which is equal to the difference between (a) 14% per annum and (b) relative base rate for U. S. dollar deposits published by the Exchange Rates Committee plus a margin of 1.125% per annum subject to a minimum of 10.0 % per annum. Paragraph 13 (formerly paragraph 17) Updated via F.E. Circular 9 dated 24th January, 1994. 14. Coverage of Exchange Risk by the Government.
(i) Apart from the forward cover facilities provided by the Authorised Dealers to the exporters / importers in accordance with the instructions laid down in the preceding paragraphs, Government of Pakistan also covers exchange risk in respect of foreign currency loans (including interest payable thereon) directly contracted by the borrowers in the private sector from lenders abroad including the loans contracted under Pay-As-You-Earn Scheme and suppliers credits / loans guaranteed by the Federal Government. The exchange risk is under-written by the Government on payment on the outstanding principal amount of a fee fixed by the State Bank from time to time in consultation with the Government in respect of each currency separately. (ii) The option for coverage of exchange risk under the facility is required to be registered with the Chief Managers of the area offices of the State Bank within 30 days of the Investment Promotion Bureau's final approval of PAYE loan contract / registration of credit / loan agreement with the Investment Division, Executive Control Department, State Bank of Pakistan, Karachi in other cases. The borrowers are free to take the coverage either from the date of opening of the letter of credit or form the date of disbursement. In cases where cover is taken from the letter of credit opening date, the foreign currency amounts of principal / interest is converted into Pakistan rupees at the Authorised Dealer's Spot T.T. and O.D. selling rate obtaining on the date of opening of letter of credit. In cases where the borrowers opt to take the cover from the date of disbursement, conversion of foreign currency amounts of principal / interest in Pakistan rupees is made at the Authorised Dealer's Spot T.T. & O.D. Selling rate obtaining on the date of disbursement. The fee is charges with effect from the date of opening of the letter of credit or from the borrower is final and will remain valid till liquidation of the entire credit. The repayment schedule will be drawn up in the currency of the credit also showing Pak. Rupees equivalent at the above mentioned rate of exchange. The liability of the borrower will be limited to the Rupee amounts mentioned in the repayment schedule. The repayment schedule are required to be registered with the State Bank of Pakistan as per the procedure outlined in para 50 of Chapter XIII. (iii) the following procedure will be followed in regard to the above:
(iii) On receipt of the above documents, the Chief Manager concerned will issue a letter acknowledging that the option has been registered. (iv) The nominated bank will draw up repayment schedule, get the same registered with State Bank of Pakistan in terms of para 50 of Chapter XIII and submit a copy thereof to the area Chief Manager of the State Bank of Pakistan with reference to the letter registering the option. (v) The nominated bank will make remittances on due dates as per the registered repayment schedules in terms of the general authority given under para 69(1) of Chapter-XIII in case of Supplier's Credits / loans not guaranteed by the Federal Government. In case of other borrowings guaranteed by the Federal Government, remittances will be made on due dates after obtaining approval from the Control on submission of Economic Affairs Division's authority. It should be noted that the nominated bank will make its own arrangement for recovery from the borrowers of rupee amount equivalent of principal / interest plus exchange risk fee at the time of remittance of the relative installment. (vi) Exchange risk fee recovered from the borrowers will be deposited by the nominated bank with the respective area office of the State Bank of Pakistan within 3 working days from the due date of the relative installment for credit to the appropriate Federal Government Account. In cases where cover is taken with effect from letter of credit opening date, one year's exchange risk coverage fee is required to be deposited in advance on the date of opening of letter of credit. Late deposit of exchange risk coverage fee will attract penalty @ Rs.4.00 per Rs.10,000.00 per day. Paragraph 14 (vi) (formerly paragraph 18 (vi) )Updated via F.E. Circular 28, dated 29th March, 1993. Paragraph 14 (vi) (formerly paragraph 18 (vi) Updated via F.E. Circular 61, dated 15th August, 1993. (vii) In cases where rupee installment of principal / interest recovered from the borrowers as per the repayment schedule exceeds the rupee cover required for effecting the remittance at the rate of exchange prevailing on the date of remittance, such excess amount will also be deposited by the nominated bank with the area office of the State Bank of Pakistan within the time limit mentioned in the preceding sub-para, for credit to appropriate Federal Government Account. (viii) In case the rupee amount of principal / interest recovered from the borrowers as per the repayment schedule falls short and does not cover the amount of installment at the rate of exchange obtaining on the date of remittance the nominated bank will effect the remittance on due date and claim the differential from the area Chief Manager of the State Bank of Pakistan. The claims to be lodged by the nominated banks in this regard should bear reference to the area Chief Manager, State Bank of Pakistan's letter acknowledging the relative option. 15. Other Forward Sales against Imports. In all other cases of forward sales of exchange covering imports prior approval of the State Bank must be obtained. 16. Booking of Forward Cover Outside Pakistan. 
Section 4(1) of the Foreign Exchange Regulation Act, 1947, inter-alia, provides that except with the prior permission of the State Bank, no person resident in Pakistan shall outside Pakistan, buy, and borrow from, or sell or lend to, or exchange with any person any foreign exchange. General permission has, however, been given to the exporters in Pakistan to book forward exchange cover in the international market in respect of contracts made by tem for exports of goods from Pakistan, priced in a convertible currency other than U.S. dollar, in case they do not desire to obtain a forward cover from an Authorised Dealer in Pakistan in rupee terms and wish to keep the dollar versus rupee portion of the transaction uncovered, subject to the following conditions:
When a forward cover is booked in accordance with the general permission given above, the exporter shall submit a copy of the cover note to the Authorised Dealer in Pakistan through which the export documents are to be sent abroad, and declare on the 'E' Form, the value of the goods in the contracted currency as well as its equivalent in U.S. dollar at the booked rate. The Authorised Dealer while reporting the export receipt in the monthly foreign exchange returns, shall attach the cover note with the triplicate 'E' Form. Paragraph updated via the Reprinted Chapter handout as published by the State Bank of Pakistan (30-06-1993). Above paragraph is Updated via F.E. Circular 48, dated 12th June, 1994.
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