All Authorized Dealers
In Foreign Exchange,

Dear Sirs,

FORWARD COVER

Attention is invited to F.E. Circular No. 48 dated the 12^th June, 1994 on the above subject.

2. In order to bring depth in the short term forward cover market, it has been decided to permit persons maintaining foreign currency accounts with the Authorized Dealers in Pakistan to 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 will be as under:-

1. 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 necessary that the importer and seller are the customers of the same Authorized Dealer.

2. The seller will authorize the Authorized Dealer to mark a lien on the respective foreign currency account to the extent of the amount involved.

3. 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.

4. As and when payment is required to be made for imports:

1. 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.

2. 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.

3. Authorized Dealer will report the import transaction in the monthly foreign exchange return in the normal way on form "I" – Schedule E-2.

5. 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 late in the same manner as other forward sale contracts are closed out e.g. in accordance with para 9 – Chapter IV of the Foreign Exchange Manual circulated vide F.E. Circular No.33 dated the 28^th March, 1994.

3. The provisions of para 2, 4 & 7 – Chapter IV of the Foreign Exchange Manual as circulated vide F.E. Circular No.33 dated the 28^th March, 1994 will, ipso- facto, apply to the forward contracts made in terms of para 2 of this letter.

4. Please bring the above to the notice of your constituents.