• Exchange contracts
• General
• Early delivery
• Extension
• Cancellation
• Swap cost
• Outlay and inflow of funds

RULE 8-Early Delivery, Extension and Cancellation of Forward

Exchange contracts

1. General
   1. At the request of the customer, unless stated to the contrary in the provisions of the Exchange Control Manual, it is optional for a bank to –
      1. Accept or give early delivery;
      2. Extend the contract;
   2. It is the responsibility of the customer to effect delivery or to request the bank for extension/ cancellation as the case may be on or before the maturity date of the contract.
   3. Banks will levy a minimum charge of Rs. 100/- for every request from a cancellation of a contract.
   4. Merchant Foreign Exchange Contracts booked prior to 31st December, 1998 and delivery of which is effected after 1st January, 1999 wherein one of the currencies is EMU member country currency- the delivery of the said currency can be in the euro or in the currency of contract, at the option of the bank customer.
2. Early delivery
   
   If a bank accept or gives early delivery, the bank shall recover/ pay swap difference, if any.
   
3. Extension
   
   Forward contract, either short term or long term contracts where extension is sought by the customers (or are rolled over) shall be cancelled (at T.T. Selling or Buying Rate as on the date of cancellation) and rebooked only at current rate of exchange. The difference between the contracted rate and the rate at which the contract is cancelled should be recovered from/ paid to the customer at the time of extension. Such request for extension should be made on or before the maturity date of the contract.
   
4. Cancellation
   1. In the case of cancellation of a contract at the request of the customer, the bank shall recover/ pay, as the case may be, the difference between the contacted rate and the rate at which the cancellation is effected.
   2. Rate at which cancellation is to be effected:
      1. Purchase contracts shall be cancelled at the contracting bank’s spot T.T. selling rate current on the date of cancellation.
      2. Sale contracts shall be cancelled at the contracting bank’s spot T.T. buying rate current on the date of cancellation.
      3. Where the contract is cancelled before maturity, the appropriate forward T.T. rate shall be applied.
   3. Exchange difference not exceeding Rs. 50/- shall be ignored by the contracting bank.
   4. In case a purchase contract becomes overdue, due to the bank’s inability to accept the bills tendered as approved bills and the exporter takes up the contract by tendering other approved bills or cancels the contract within a reasonable time, such cancellations shall be governed by IV (a), (b) and (c) above.
   5. Notwithstanding the fact that the exchange contract between the customer and the bank becomes impossible of performance, for whatever reason, including Government prohibitory order, the exchange contract shall not be deemed to have become void and the customer shall forthwith apply to the bank for cancellation subject to provisions of paras IV (a), (b) and (c) above.
   6. 1. In the absence of any instructions from the customer, vide para a(b) contracts which have matured shall on the 15th day from the date of maturity be automatically cancelled. In case the 15th day falls on a Saturday or holiday, the contract will be cancelled on the next succeeding working day.
         
         Note:
         The customer cannot effect delivery extend or cancel the contract after the maturity date and the procedure for automatic cancellation on the 15th day from maturity date should be adhered to in all cases of default by the customer.
         
      2. Swap cost, if any, shall be recovered from the customer under advice to him.
      3. In case, the contract is ultimately cancelled, the customer will not be entitled to the exchange difference, if any, in his favour, since the contract is cancelled on account of his default.
      4. In case of delivery subsequent to automatic cancellation the approapriate current rate prevailing on such delivery date shall be applied.
5. Swap cost
   1. Swap cost to be recovered from customers. In all cases of early delivery of purchase or sale contracts, swap cost shall be recovered from customers irrespective of whether an actual swap is made or not. Such recoveries should be made either back-ended or frontended in the discretion of banks.
   2. Swap Gain
      Payment of swap gain to the customer will normally be made at the end of the swap period.
      
6. Outlay and inflow of funds
   1. Interest at not below the prime lending rate of the respective bank on outlay of funds by the bank for the purpose of arranging the swap shall be recovered in addition to the swap cost in case of early delivery of purchase or sale contracts and early realization of export bills negotiated. The amounts of funds outlayed shall be arrived at by taking the difference between the original contract rate and the rate at which the swap could be arranged.
   2. If such a swap leads to inflow of funds, the amount shall be arrived at as above and interest shall be paid in the discretion of banks to the customer at the appropriate rate applicable for term deposits for the period for which the funds remained with the bankdeposits for 180 days (presently 8% per