CHAPTER
IV
FORWARD
EXCHANGE FACILITIES
1.
General.
2.
Forward Quotations.
3.
Forward purchase of foreign exchange against
export of goods.
4.
Forward sale of foreign exchange against
import of goods.
5.
Forward
sale against investment by Non-Residents
6.
Forward transactions between Authorised
Dealers.
7.
Forward transactions with overseas branches
and correspondents.
8.
Forward cover to the Investment Banks, Leasing
and Modaraba Companies.
9.
Extension of forward contracts.
10.
Discounting of usance export bills.
11.
Rates at which forward contracts may be
closed out.
12.
Cancellation of forward contracts.
13.
Switch over of exchange contract in cover
of imports/exports.
14.
Forward covers against foreign currency
accounts.
1.
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)
Forward 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.
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.
No forward transaction may, however, be made for a tenor of
less than one month. Further, one month's forward transactions
should be for fixed maturity. In case payment is made/received
within one month, the spot selling/buying rate will be applied
and the relevant contract will be closed out at the maturity
date.
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 to buy forward
the concerned currency in terms of U. S. Dollar, if the exporter
wishes to cover only such risk and to carry dollar versus rupee
risk himself. The Authorised Dealers will conduct such transactions
within their approved
‘Exchange Exposure' limits. On realisation of the 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.
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)
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.
(i)
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.
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 drawn on usance basis for discounting, the Authorised
Dealer may treat discounting of the usance 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.
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.
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