Trading in Forex
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last activity : 07 06 2010 20:18:04 +0000
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Booking of forward contracts
There is still some confusion among bankers as well as importers and exporters as regards canellation and rebooking of forward contracts and limits for forward contracts. I wish to clarify as follows :
1. Exporters and importers can book forward contracts against genuine underlying exposures and are free to cancel and rebook if the exposures are up to a period of one year. For booking forward contracts they should submit the documentary evidence of underlying contract to the banks. For this purpose banks fix limits for booking forward contracts based on the previous performance, ability to pay cancellation / early delivery charges etc. In this case the importers and exporters can cancel and rebook the contract any number of times without restrictions.
2. Exporters and importers are also allowed to book forward contracts on the basis of declaration of an exposure and based on past performance of upto average of previous 3 financial years ( April to March) actual import/export turnover or the actual import / export turnover of the previous yearwhichever is higher. In this case also a separate limit for such a faciltiy ( booking without production of documentary evidence for underlying exposure but only based on a simple declaration of exposure is fixed by the banks. This facility is subject to the condition that contracts booked in excess of 75 % of the eligibility limit will have to be necessarily on a deliverable basis. Another condition is that on cancellation or actual delivery of the contract, the underlying documentary evidence is to be produced to the banks.
3. It must be noted that the above two types of limits are distinct from one another.This has been clarified in para A-2 (h) of RBI Master circular no.6/2007-08 dated 2nd July 2007.
Trust, the above information will be of use to the members of this forum.
- V.Vijaya Kumar Babu, General Manager ( Forex), Sujana Group Of Companies, Hyderabad
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