Deck 3: Financial Instruments of Islamic Banking and Finance

Question 1

Investment deposits are risk-free funds which does not yield any return.

Answer 1

False

Question 2

Muslim jurists are unanimous on the permissibility of bay al-dayn.

Answer 2

False

Question 3

The modern practice of murabahah is restricted to Islamic banks and financial institutions where standard murabahah contracts are signed by the parties and conducted on deferred payment basis.

Answer 3

True

Question 4

Fees, commissions and fixed charges are not permitted for Islamic banking or finance services performed by either a corporate body or an individual.

Question 5

All banks with dual banking arrangements manage their Islamic funds separately from conventional funds.

Question 6

It is not a condition for the validity of the murabahah contract that the buyer knows the original cost price of the commodity or the additional profit that has been added by the seller.

Question 7

The end product of tawriq is the issuance of sukuk or sanadat to the large number of investors.

Question 8

There is a direct justification for istisna' contract in the Qur'an and Sunnah.

Question 9

'Sources and application of funds' refers just to the cash inflows in an Islamic bank or financial institution over a period of time.

Question 10

A salam contract can be defined as a contract of sale where the seller agrees to supply specific goods to the buyer on a deferred basis in exchange of an advanced price fully paid on the spot.

Question 11

Tawriq is the equivalent term for intermediation in Islamic commercial jurisprudence.

Question 12

Bay al-dayn is sale and purchase transaction involving a quality debt.

Question 13

Bay al-Inah sell-and-buy-back transaction. remains very controversial in the global Islamic finance industry.

Question 14

The istisna' manufacturing contract. will only be complete when the bargain has been completed with clear stipulations of the price, quality, and specifications.

Question 15

Islamic banks rely on transaction deposits and investment deposits funds which they use in their banking business.

Question 16

Murabahah is the sale of a commodity at the cost price at which it was purchased plus an additional profit which has been mutually agreed by the parties.

Question 17

Bay al-salam is specifically meant to facilitate the commercial activities of manufacturers, traders, and investors.

Question 18

Dual banking system is a banking system of a country or a territory that incorporates both conventional and Islamic financial systems.

Question 19

Bay' al-sarf is a foreign exchange contract that involves the exchange of currencies which must be of the same kind.

Question 20

The Shafi'i School maintains that the motive is paramount in determining the validity of bay al-inah contracts.

Question 21

The amount of profit for each partner under musharakah must be determined in proportion to the capital invested by the partner.

Question 22

In diminishing musharakah, the bank is not allowed to sell its share at a price which is higher than its original value to make a profit.

Question 23

The exchange-based contracts involve hiring or employing another person or renting a premise for a specific purpose in line with the payment of certain wages, rental fee or commission.

Question 24

The hadith "gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates... hand to hand...." implies that trade in currency is permissible in Islamic law.

Question 25

The legality of mudarabah contract is established in only the ijma consensus of opinion of scholars..

Question 26

The bank services utilised by customers should be paid for through the ujrah scheme.

Question 27

In the juristic sense, hawalah is a special type of security contract which simply means debt assignment.

Question 28

As a financial instrument, the concept of ujrah has been used by a number of banks for Sharī'ah-compliant credit card schemes.

Question 29

Unlike mudarabah, musharakah emphasises the practical participation of both parties in the partnership business.

Question 30

The parties to the mudarabah partnership contract share any losses of the business venture based on agreed percentage.

Question 31

Lease contract is considered an impractical mode of financing in modern Islamic banking and finance and does not represent a genuine alternative to the charging of interest.

Question 32

In Islamic jurisprudence the term 'ijarah' has been used in two different ways: employing another person to do a particular job for a consideration known as wages, and transferring of usufruct in an asset for a consideration.

Question 33

Permissibility of tawarruq is based on the general principles of a typical contract of sale and the absence of any modicum of interest in this transaction.

Question 34

Both the mudarib and rab al-mal in the partnership contract are active partners in the day-to-day running of the business.

Question 35

Ijarah means lease, while tamlik denotes ownership

Question 36

A Ju'alah contract may be useful in the recovery of overdue debts.

Question 37

In the event of losses under musharakah, the entrepreneur loses his/her labour and the financier loses the capital.

Question 38

The legality of the ju'alah contract is established in the Qur'an and Sunnah.

Question 39

Musharakah is considered as the most viable Islamic finance products in the modern banking business.

Question 40

Ijarah thumma al-bay transactions are concluded under one contract.

Question 41

Tabarru' is a unilateral contract where a reward or commission is promised for the accomplishment of a specific task.

Question 42

Islamic bank will be inclined to use ibra' when it appears that the debtor is not able to redeem the debt.

Question 43

Muslims jurists have three different views regarding the legality of muqasah since its legality was not established in the Qur'an and/or Sunnah.

Question 44

Which of the following is not a source of fund for Islamic banks?
a. current accounts
b. saving account
c. accounts receivables
d. investment account

Question 45

Ownership in tabarru' is transferred at the time of donation from the donor to the donated party.

Question 46

Rahn contract involves positive steps towards securing a debt through some forms of mortgage.

Question 47

Wadi'ah yad al-amanah safe-keeping under a trust. is a trust safe-keeping which is considered a commercial act aimed at generating profit.

Question 48

Wakalah is a contract establishes an agency relationship between two parties for a specific purpose; therefore such authority must be specific.

Question 49

Any damage to the property under wadi'ah yad al-amanah safe-keeping under a trust. will attract liability accordingly.

Question 50

Muslim jurists hold different opinions on the binding nature of wa'ad.

Question 51

Wakalah contract is normally considered as an accessory contract.

Question 52

Hibah is a process where a person dedicates his property to God for the benefit of a specific class of people in society or for the whole public.

Question 53

Kafalah means paying-off overdue obligations.

Question 54

The principal party in wakalah contract is the muwakkil while the agent is the wakil in an agency relationship.

Question 55

Wadi'ah is used in relation to both current accounts and saving accounts.

Question 56

There is no common consensus among Muslim jurists regarding the permissibility of a wadi'ah contract.

Question 57

Wadi'ah yad al-damanah refers to safe-keeping with the guarantee of funds or property deposited.

Question 58

The legitimacy of the concept and practice of wakalah is established in the Qur'an and Sunnah.

Question 59

In cash waqf, customers can donate cash as waqf to a specified account and the funds will be invested for a specific purpose.

Question 60

In Wadi'ah yad al-amanah depositors keep their money with a bank, and this money is considered as the bank's source of funds with which it carries out its business.

Question 61

The modern application of hawalah comprises:

A) bills of exchange suftajah.
B) endorsement of a negotiable instrument
C) transfer of money or remittance al-sarf.
D) all of the above

Question 62

The main channels. for the outflow of the funds of Islamic banks include:

A) musharakah, murabahah and murabahah
B) ijarah and istisna
C) bay salam and bay mu'ajjal models
D) all of the above

Question 63

The istisna' structure is most suited for following activities except:

A) project finance
B) construction
C) commercial activities of farmers
D) manufacture and design of machinery for specific purposes

Question 64

A murabahah transaction is deemed lawful if:

A) both tangible and non-tangible goods subject to murabahah are lawful, real and have commercial value.
B) the buyer is aware of the original cost price of the goods and any additional costs incurred in the process of procuring the goods.
C) the margin of profit is mutually predetermined by the parties at the initial stage of the contract.
D) all of the above

Question 65

_________ is the equivalent term for securitization in Islamic commercial jurisprudence.

A) Tawarruq
B) Tawriq
C) Istisna
D) None of the above

Question 66

Being service-based contracts, ijarah contracts signify:

A) leasing
B) leasing and subsequent purchase
C) fees
D) commission

Question 67

Bay al-inah as a financial instrument is used.

A) only in Malaysia
B) in Malaysia and Sudan
C) in Arab Gulf States
D) globally

Question 68

The two types of mudarabah are:

A) short term and long term mudarabah
B) restricted muqayyad. and unrestricted mutlaq. mudarabah
C) personally oriented and business oriented mudarabah
D) none of the above

Question 69

Modern scholars believe that Tawarruq transactions are permissible subject to the following conditions.:

A) the person needs the money to undertake long overdue vacation.
B) there is no other permissible manner of obtaining halal cash financing, such as benevolent loans
C) the contract may include modicum of riba.
D) all of the above

Question 70

The hybrid sale contract where a customer approaches a bank or financial institution to purchase a commodity with payment arranged on instalment basis and the customer in turn sells the commodity to a third party for cash is

A) Tawarruq
B) Sarf
C) Tawriq
D) murabaha

Question 71

The two main modern application of ijarah are:

A) contract of lease ending with sale, and contract of sales with immediate purchase
B) contract of lease ending with ownership, and contract of sales with immediate purchase
C) contract of lease ending with sale, and contract of lease ending with ownership
D) none of the above

Question 72

The following are partnership contracts which have been transformed into financial instruments EXCEPT:

A) mudarabah
B) musharakah
C) bay al-salam
D) musharakah mutanaqisah

Question 73

Mudarabah in Islamic banking and finance is being used in:

A) venture capital
B) project financing
C) general and specific investment accounts
D) all of the above

Question 74

Tangible and non-tangible goods subject to murabahah must be:

A) lawful
B) real
C) have commercial value
D) all of the above

Question 75

Which of the following is a correct statement that describes an essential element of hawalah:

A) muhal: the transferor or debtor who assigns the debt
B) muhil: the transferor or debtor who assigns the debt
C) muhal 'alayhi: the transferred debt which is assigned from one debtor to another
D) al-Muhal bihi. the transferee of the assigned debt

Question 76

Investment accounts operated by Islamic banks are based on the concept of:

A) wadiah
B) hibah
C) mudarabah
D) murabahah

Question 77

Differences between musharakah and mudarabah contracts include all the following except:

A) sources of financing the business
B) rights of partners to participate in the management of the business
C) legality of the contracts
D) liability of the partners

Question 78

In _______________________ , the deposited funds yield some returns.

A) current accounts
B) savings accounts
C) credit accounts
D) investment accounts

Question 79

A Salam as an exchange-based contract signifies:

A) manufacture sale
B) forward sale
C) mark-up
D) sale of debt

Question 80

____________ contract is a voluntary charitable contract based on the concept of mutual assistance

A) rahn
B) hawalah
C) maqassah
D) musharakah