The Exchange Rate Applicable in Case of Cancellation of a Forward Purchase Contracts

The customer may approach the bank for cancellation when the underlying transaction becomes infructuous, or for any other reason he wishes not to execute the forward contract. According to FEDAI rules, a forward contract not taken up or extended by the customer even after 15 days from its due date shall be cancelled by the bank unilaterally.

When aforward purchase contract is cancelled on the due date it is taken that the bank purchases at the rate originally agreed and sells the same back to the customer at the ready T.T. rate. The difference between these two rates is recovered from/paid to the customer. If the purchase rate under the original forward contract is higher than the ready TT selling rate, the difference is payable to the customer. If it is lower, the difference is recoverable from the customer.

The amount involved in purchase and sale of foreign currency are not passed through the customer’s account. Only the difference is recovered/paid by way of debit/credit to the customer’s account.

In the same way when aforward sale contract is cancelled it is treated as if the bank sells at the rate originally agreed and buys back at the ready T. T. buying rate. The difference between these two rates is recovered from/paid to the customer.

The exchange difference resulting in profit shall be paid to the customer only when the cancellation is done at the request of the customer. It is not payable if the cancellation is done by the bank when the contract becomes overdue. For every cancellation the bank is entitled to a flat charge of not less than Rs. 100.

Early cancellation: If a forward purchase contract is required to be cancelled by the customer earlier than the due date it would be cancelled at the forward selling rate prevailing on the date of cancellation, the due date of this sale contract to synchronise with the due date of the original forward purchase contract.

If a forward sale contract is cancelled earlier than the due date, the cancellation would be done at the forward purchase rate prevailing on that date with due date to fall on the due date of the original forward sale contract.

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