Circulars/Notifications - Exchange Policy Department  
FE Circular No. 07 of 2011

December 21, 2011

The Head/ Principal Offices of all
Authorized Dealers in Foreign Exchange

Dear Sirs/Madam,

Forward Cover Facility against Foreign Private Loans

Attention of Authorized Dealers is invited to Para 2, Chapter IV, FEM – 2002 in terms of which forward cover facility is provided by Authorized Dealers to their customers against Foreign Private Loans and related instructions contained in on the subject.

In order to further streamline the said instructions following terms and conditions will apply with immediate effect:

  1. Minimum tenor of forward cover against such loans shall be twelve months or remaining maturity of the underlying foreign private loan, whichever is lower. In either case no forward cover facility will be provided for a period of less than one month. 
  1. In cases where the underlying foreign loans have a tenor of more than 12-months, the tenor of the forward cover facility would be 12-months on rollover basis or the remaining tenor of the loan, whichever is less; subject to the condition that the tenor of the forward cover should not be for less than one month.
  1. Forward cover already provided to customers prior to the effective date of this circular shall remain effective till their maturity. Any rollover of the said contract shall however be in accordance with revised instructions contained herewith. 
  1. In terms of instructions contained above and in F.E. Manual 2002, banks will ensure abinitio that the facility is being availed for genuine transaction and that the customers do not hedge more than the underlying exposure. Furthermore, if during SBP’s inspection or at any point of time, it is found that the said facility was misused for and not against genuine transactions, action will be taken by SBP under Foreign Exchange Regulation Act, 1947, against the concerned bank and the customer.

Authorized Dealers are advised to bring the above to the notice of their constituents, and ensure strict compliance.

Yours faithfully,

  (Muhammad Akmal)
Additional Director

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