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Risk Management in Islamic Finance pdf

Risk Management in Islamic Finance: An Analysis of Derivatives Instruments in Commodity Markets (Brill’s Arab and Islamic Law)

  • Book Title:
 Risk Management In Islamic Finance
  • Book Author:
Muhammad Al- Bashir
  • Total Pages
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  • List of Tables ix
  • List of Statutes ix
  • List of Cases ix
  • Acknowledgments xi
  • List of Contemporary Scholars xiii
  • The Islamic Fiqh Academies xix
  • Transliteration xxi
  • Chapter One Introduction 1
  • Background of the Research 1
  • Objectives of the Research 7
  • Research Methodology 8
  • Scope and Limitations of the Study 10
  • Outline of Chapters 12
  • Distinctive Features of the Research 14
  • Literature Review 15
  • Forward and Futures Contracts 15
  • Options Contracts 35
  • Chapter Two The Forward Commodities Market 44
  • Economic Benefits of the Forward Contract 45
  • Istisnāʿ and the Forward Contract 61
  • Ibtidāʾ Al-Dayn Bi Al-Dayn and the Forward Contract 63
  • Bayʿ Al-Sifah and the Forward Contract 65
  • Nonexistence of the Subject Matter and the Forward
  • Contract 67
  • Chapter Three Is it Permissible to Exchange Gold with
  • Paper Money on Forward Basis? 72
  • Historical Sketch of the World Monetary System 72
  • Critical Analysis of Several Fatwās on Gold Trading 75
  • The ʿIllah behind Trading Gold unless Its Hand to Hand 84
  • The Effect of the ʿIllah in Gold to Its Trade on a Forward
  • Basis 87
  • vi contents
  • Chapter Four The Forward Market for Currencies 94
  • Basic Rules of Currency Exchange and Paper Money 94
  • Mutual Promise in Currency Exchange 103
  • Mutual Loan and Currency Risk Management 109
  • Currency Basket and Risk Management 110
  • Managing Price Fluctuation through Deposit 111
  • Cooperative Funds and Currency Risk Management 111
  • Chapter Five Concept, Scope of Futures Contracts and
  • Speculation 121
  • Concept of Futures Contracts 121
  • Characteristics of a Succesful Futures Market 123
  • Futures Contracts and Forward Contracts 124
  • A Brief History of the Commodity Market 130
  • Scope of the Futures Market 133
  • Economic Benefits of Futures Contracts 134
  • The Clearinghouse and the Futures Market 139
  • Hedging and the Futures Market 141
  • Speculation and the Futures Market 143
  • Speculation and Financial Crises 150
  • Arbitrage and Speculation 155
  • Margin Trading and Speculation 157
  • Chapter Six Sale Prior to Taking Possession, Sale of Debt
  • and Futures Contract 159
  • Juristic Debate over Sale prior to Taking Possession 159
  • The Meaning of Taʿām 164
  • Salam and the Futures Contracts 165
  • Parallel Salam and the Futures Market 167
  • Chapter Seven Futures Market Regulation 177
  • Intermediaries in the Futures and Options Market 177
  • The Fidelity Fund 180
  • Futures Market Regulation 181
  • Trading Offences Under the Futures Industry Act and
  • Islamic Law 186
  • contents vii
  • Chapter Eight Concept and Scope 195
  • Concept of Options 195
  • Definition 196
  • Economic Benefits of Options 198
  • American and European Options 203
  • Types of Options 204
  • Exchange Traded and Over-The-Counter Islamic Options 206
  • A Brief History of Options Trading 207
  • Scope of Options 208
  • Options and Gambling 210
  • Chapter Nine Khiyār Al-Sharṭ, Risk Management and
  • Options 222
  • Concept of Khiyār Al-Shart ̣ 223
  • The Terms of Khiyār Al-Shart ̣ 224
  • Ownership of Commodity During the Period of Khiyār and Libiality for Damage 226
  • Managing Price Risk with Khiyār Al-Shart ̣ 228
  • Khiyār Al-Naqd 234
  • Chapter Ten ʿArbūn Risk Management and Options 237
  • The Legal Status of Bayʿ Al-ʿArbūn 241
  • ʿArbūn in Currency Exchange or sạ rf 242
  • ʿArbūn in Commodities and Services 242
  • ʿArbūn in Shares Trading 244
  • ʿArbūn in Murābaḥah 245
  • ʿArbūn in Salam 250
  • ʿArbūn in ʿIstisnāʿ 251
  • ʿArbūn as the Islamic Alternative to Options 252
  • ʿArbūn as an Alternative to Call Option 253
  • ʿArbūn as an Alternative to Put Option 254
  • Does Options Trading Involve the Combination of Two
  • Contracts in One Transaction? 264
  • viii contents
  • Chapter Eleven The Sale of Pure Rights and the Legality
  • of Options 266
  • Concept of Māl or Property 273
  • Haqq Al-Nuzūl ʿAn Al-Wazāʿif and the Sale of Rights 276
  • Huqūq Al-Irtifāq and the Sale of Rights 278
  • Badal Al-Khulu and the Sale of Rights 280
  • Sale and Exchange of the Right of Precedence 282
  • Intellectual Property and the Sale of Right 284
  • Right to Option in Khiyār Al-Sharṭ and Right of Shuf ʿah
  • or Pre-Emption as Property Rights 287
  • Sale and Exchange of the Right to Option in Khiyār
  • Al-Sharṭ and the Right to Pre-Emption or Shuf ʿah 290
  • Exchange of Right to Bargain for Purchase of Commodity 294
  • Sale of a Right By a Wife To Have Her Husband With Her 295
  • Earning an Exchange For Waiving the Right To Hadānah 295
  • Earning an Exchange For Waiving a Right 296
  • Conclusion 299
  • Glossary of Arabic Terms 309
  • Bibliography 319


Islamic Fiqh Academy (Majmaʿ al-Fiqh al-Islāmī) is an affiliated institution of the of the Organization of Islamic Conference (OIC). it was established by Resolution No.8/3-C, (I.S.) adopted by the Third Islamic Summit Conference, held in Makkah Al-Mukarramah and Taif (Saudi Arabia) called for the establishment of an Islamic Fiqh Academy. The Headquarters of the Academy is located in Jeddah, Kingdom of Saudi Arabia. Almost all 57 Muslim countries are represented in the Academy.

The objectives of the Academy are:

  1. To achieve the theoretical and practical unity of the Islamic Ummah by striving to have Man conform his conduct to the principles of the Islamic sharīʿah at the individual, social as well as international levels.
  2. To strengthen the link of the Muslim community with the Islamic faith.
  3. To draw inspiration from the Islamic sharīʿah, to study contempo- rary problems from the sharīʿah point of view and to try to find the solutions in conformity with the sharīʿah through an authentic interpretation of its content.

The Islamic Fiqh Academy (al-Majmaʿ al-Fiqhī al-Islāmī-Mecca)

is an academic body with a legal personality belonging to the Muslim World League. It was established based on a decree of the Constituent Council in 1398 Hejriah. It consists of an assorted group of Islamic Jurists from around the Muslim world.

The Fiqh Council examines new issues facing Muslims, in order to show the rulings of Al-Sharīʿah educed from the Qur’an and the Sun- nah. The main objective of the Academy are:

  1. To present appropriate solutions non opposing to Islamic Laws (sharīʿah) for contemporary problems of the Muslims
  2. To project the supremacy of Islamic Laws over man made laws

. To show all related laws of sharīʿah to those Muslims who ask

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), is a based in Bahrain organization. It is a self-regulatory standard-setting body that issues accounting, auditing, governance, ethics and sharīʿah standards for Islamic financial institu- tions. To date, AAOIFI has issued more 50 standards and statements, which are mandatory in Bahrain, Sudan and Jordan, and form the basis for regulatory standards in several other countries, including Qatar and Saudi Arabia. The standards are also used as reference by Islamic financial institutions around the world.

The Council of Great Scholars is a national Saudi body established in 1971 by a Royal Decree. It is composed of sharīʿah scholars from Saudi Arabia appointed by royal decree. The Council gives opinion based on of the sharīʿah covering different aspects of life as

eferred to the council by the Kingdom authorities.

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