By Over Drafting

This facility is given to regular, reliable and well- established customers. The bank charges interest on the extra money, which the borrower takes.

When a customer requires temporary accommodation, he may be allowed to overdraw his current account usually against collateral security. From the customers point of view this agreement like cash credit is advantageous, as he is required to pay interest on the amount actually used by him.

4.5 FOREIGN EXCHANGE DEPARTMENT

In modern banking system, foreign exchange department plays very crucial and important role from every aspect. It is parallel banking with general banking with an additional function of import and export business controlled by State Bank of Pakistan. Rules and regulations are framed by state Bank of Pakistan in the form of manuals. Foreign exchange department under SBP regulations also carries out international banking of UBL. Foreign exchange is being controlled by SBP. No transaction can be affected without permission of SBP, under foreign exchange regulations Act 1947 and notification issued there under. Exchange control department of State Bank of Pakistan is responsible for day-to-day administration of exchange control.

All the transactions shall be done at rate authorized by SBP. For this purpose, US dollar has been fixed by SBP and the rates of other currencies are calculated in accordance with the formula approved by SBP and as published daily by the Foreign Exchange Rate Committee in Karachi. Head office ensures that the branches

receive the rates published by Foreign Exchange Rate Committee on the same day.

The foreign exchange department provides the following services;

1. Foreign Currency Accounts

Foreign currency in UBL can be opened in 4 major currencies of the world i.e. US dollar $, Japanese Yen, German Mark, DM and Pound Sterling. Only authorized branches of UBL can deal in foreign currency account.

Pakistani citizens and foreigners both can open foreign currency account by introduction and following the procedure required for general accounts with one exception for foreigners that they will have to submit a copy of their passport. The account may be personal or joint.

Amount deposited in foreign currency account must be in four currencies, which were mentioned earlier. When the customer will withdraw the money he will receive the amount in the same foreign currency. Profit will also be in the same currency. There are two types of foreign currency account;

a. Current account b. Saving account

I. Current Account

On current account, no profit is given to the account holder. This account is exempted from zakat, income tax and wealth tax. Worldwide remittances (inside and outside) facility is given to customer. Cash travel checks, foreign exchange bearer certificate, and coming for customer can be deposited in his account.

Similarly account holder can shift the amount or any part thereof to foreign countries through exchange remittances service.

II. Saving Account

On saving account, a handsome profit is paid to the account holder. On saving account, profit is paid to the customer in the same currency in which he had opened the account. This account is also exempted from zakat, income tax and wealth tax etc.

Saving account can be opened with an amount of $ 100 equivalent in other three currencies. The facility of inward and outward remittance is also granted to the customer. Profit is paid on monthly product basis.

2. Sale and Purchase of Foreign Currency

UBL is an authorized dealer of State Bank of Pakistan. It can sell and purchase foreign currency. UBL usually involves sale and purchase of US dollars, Japanese yen, Pound Sterling, German Mark, Saudi Riyal, and UAE Durham.

Daily exchange rate by SBP from ANZ Grind lays Bank Karachi is sent to all the branches authorized in foreign exchange. Daily sale and purchase of foreign currencies is done according to that rate sheet issued by SBP on daily basis. Sale and purchase rates of foreign currency are different.

The purchase of coins is avoided, only notes are purchased. Only those foreign currencies are purchased for which resale to customer is possible. And only those persons, who have passport, can sell and purchase foreign currency to or from UBL. Foreigners can also sell foreign currencies by showing their passport.

There are 5 rates of foreign currencies: 1. For import

2. Cash purchase 3. Cash sale

4. Travel check purchases 5. Foreign currency

It is the policy of UBL to involve only in the sale of hard currencies i.e. those, which are easily accepted. Head office of UBL has given certain limits to each authorized branch about the custody of foreign currency. If the amount exceeds this limit, the branch must transfer the cash to feeding branch or SBP.

All the authorized branches of UBL must submit following reports about foreign exchange business;

1. Report to general manager office 2. Monthly business report to SBP 3. Monthly report to head office

3. Remittances in Foreign Exchange

As we know that the money of one country is not legal tender in other countries. The monetary device, which has been evolved, for all international payments is the foreign exchange from the exporter and others who have it for sale and sell foreign currency to importers and others who need it in their own countries. A transfer from a bank account in the debtor’s country to the creditor’s country affects the international payments.

Two branches of the same bank or of different banks involve in foreign remittance. One is called remitting branch or bank and the other is called receiving branch or bank. In foreign currency, SBP

has given general permission to authorized dealers in foreign exchange including UBL to affect remittances for specific purposes without referring it to (SBP) for approval i.e. remittance on account of education subscription, books and periodical of technical nature. Remittance can be done in following ways;

1. Telegraphic Transfer (TT) 2. Mail Transfer (MT)

CHAPTER – 5