FEDAI rules regarding Foreign Exchange Contracts

The FEDAI Rules (10th edition) for import transactions came in to force with effect from 01 April 2019. Regarding foreign exchange contracts the FEDAI rule 5 specifies the norms detailed as below.
Contract amounts:
FEDAI rule 5.1 states that any ‘Exchange contracts’ shall be for definite amounts and periods”. Whenever a bill contract mentions more than one rate for bills of different deliveries, the contract must state the amount and delivery against each such rate.
Option period of delivery:
FEDAI rule 5.2 states that “unless the date of delivery is fixed and indicated in the contract, option period may be specified at the discretion of the customer”. The above provision is subject to a condition that such an option period of delivery shall not extend beyond one month. In the case of a fixed date of delivery or the last date of delivery option is a known holiday; the last date for delivery shall be the preceding working day. However, in case of suddenly declared holidays, the contract shall be deliverable on the next working day.
All contracts permitting ‘option of delivery’ must state the first & last dates of delivery. For example: 22nd November 2019 to 21st December 2019, 25th January 2020 to 24th February 2020, etc.
Meaning of “Ready” or “Cash”, “Value next day”, “Spot contract”, “Forward Contract”:
In “Ready” or “Cash” merchant contract, delivery must be on the same day. In “Value next day” contract delivery must be on the working day immediately succeeding the contract date. In a “spot contract” delivery must be on second succeeding working day following the contract date. In a “forward contract” delivery must be at a future date, beyond Spot Date. The duration of the contract is computed from the spot value date at the time of the transaction.
Place of delivery:
As per FEDAI rule 5.3, all contracts shall be understood to read “to be delivered or paid for at the Bank” and “at the named place”.
Date of delivery:
As per FEDAI rule 5.4, the date of delivery under forward contracts shall be;
i) The date of negotiation/purchase/ discount and payment of Rupees to the customer respectively for bills/documents negotiated, purchased or discounted. However, in case the documents are submitted earlier to, or later than the original delivery date, or for a different usance, the bank may treat it as proper delivery, provided there is no change in the expected date of realisation of foreign currency calculated at the time of booking of the contract. In such cases, banks shall not recover early realisation or late delivery charges from the customer.
ii) In case of export bills/documents sent for collection date of payment of Rupees to the customer on realisation of the bills.
iii) In case of retirement/crystallisation of import bills/documents shall be the date of retirement/ crystallisation of liability, whichever is earlier.
Option of delivery:
As per FEDAI rule 5.5, the merchant (buyer or seller) in all forward contracts, will have the option of delivery.
Option of usance:
As per FEDAI rule 5.6, the merchant purchase contract should mention the tenor of the bills/documents. However, the acceptance of delivery of bills/documents drawn for a different tenor will be at the discretion of the bank.
Merchant quotations:
FEDAI rule 5.7 states that the exchange rate shall be quoted in direct terms i.e. so many Rupees and Paise for 1 unit or 100 units of foreign currency. For example: 1 US Dollar= Rs.71.79, or 100 Japanese Yen=Rs.66.09

Rounding off Rupee equivalent of the foreign currency:
As per FEDAI rule 5.8, settlement of all merchant transactions may be effected by rounding off rupee amount (without paise) or in actual paise, as per the bank’s own policy. (Example: fractions of 50 paise and above to be rounded off to next rupee and the fraction of below 50 paise to be ignored and rounded off to the previous Rupee as per the bank’s own policy.)

Read following articles related to FEDAI rules

1. What is the role of FEDAI?
2. Important FEDAI Rules
3. FEDAI rules regarding Foreign Exchange Contracts
4. FEDAI rule: Transfer of funds between Vostro Accounts with two banks explained
5. FEDAI rules related to clean instruments/ inward remittance
6. FEDAI rules related to import transactions
7. FEDAI RULEs related to export transactions
8. FEDAI Rule: Export Bills sent for collection
9. FEDAI rules: Interest/Swap charges in case of Substitution/Change in Tenor of a bill
10. FEDAI rules related to Normal Transit Period and the notional due date
11. FEDAI RULES: Business Hours for quoting FX rates