Question 1

A company enters into an Islamic finance contract,where the bank buys good worth $500,000 with an agreement to resell the goods to the company on credit with a 20% markup price.What is the final cost to the company?

Accepted Answer

The final cost to the company is $600,000 because the bank adds a 20% markup to the original $500,000 cost, resulting in $500,000 + ($500,000 * 0.20) = $600,000.

Question 2

Which of the following describes Murabahah?

Accepted Answer

Murabahah is an Islamic financing structure where the bank agrees to buy an asset and resell it to the customer on credit. The bank marks up the price by an agreed-upon profit margin, which is disclosed to the customer. The customer then pays the cost plus the mark-up over an agreed-upon period. This is a popular structure for Islamic financing of large purchases, such as real estate or vehicles.

Question 3

The interpretation of Islamic shariah principles is attributed to five main schools of thought.Which of the following is not one of these schools of thought?

Accepted Answer

The four main schools of Islamic jurisprudence are Maliki, Hanafi, Shafi'i, and Hanbali. "Nakheel" is not a recognized school of thought in Islamic jurisprudence.

Question 4

Which of the following modes of Islamic financing is the most popular gobally?

Accepted Answer

The answer of Which of the following modes of Islamic...

Question 5

Ijarah financing is a growing area for Islamic financing?
An Ijarah contract is:

Accepted Answer

An Ijarah contract is a type of Islamic financing where the bank purchases a durable asset and leases it to the customer for a rental payment based on a prearranged schedule. This type of financing is becoming increasingly popular in Islamic banking as it allows customers to acquire assets without taking on debt and without violating Islamic laws regarding interest.

Question 6

In 2008 the Islamic banking system was growing at what rate?

Accepted Answer

The answer of In 2008 the Islamic banking system was...

Question 7

Which of the following describes Hiba?

Accepted Answer

Hiba refers to a gift given at the bank's discretion, often used in Islamic finance as a goodwill gesture.

Question 8

The modern Islamic banking movement began with the establishment of the Local Islamic Bank in the city of Mit Ghamr,Egypt in 1963.

Accepted Answer

The modern Islamic banking movement is often traced back to the establishment of the Mit Ghamr Savings Bank in Egypt in 1963, which operated on Islamic principles.

Question 9

To highlight the growing importance of Islamic finance in global business,the Dow Jones (DJ)and Financial Times Stock Exchange indicator (FTSE)have created their own Islamic securities indices.

Accepted Answer

The statement is true. The Dow Jones and FTSE have indeed created their own Islamic securities indices to cater to the growing importance of Islamic finance in global business.

Question 10

Which of the following is not seen as a significant challenge to Islamic financial institutions in the future?

Accepted Answer

Lack of interest in non-conventional sources of finance is not viewed as a significant challenge to Islamic financial institutions as there is a growing demand for Islamic finance products and services. However, shortage in qualified personnel, ambiguity in application, and lack of standardization are viewed as significant challenges that need to be addressed in order to ensure the sustainability and growth of Islamic finance industry.

Question 11

Which of the following is true for the 2008 financial crisis?

Accepted Answer

Islamic banks generally suffered less during the 2008 financial crisis compared to conventional banks due to their different risk-sharing principles and avoidance of speculative financial products.

Question 12

The main reason for Islamic banks suffering as a result of the 2008 financial crisis was:

Accepted Answer

Islamic banks were affected by the 2008 financial crisis primarily due to the overall downturn in the economy, which impacted all financial institutions, rather than direct exposure to derivatives or toxic debt, which are typically avoided in Islamic banking due to Shariah compliance.

Question 13

A conventional bond is a debt instrument.The issuer owes the investor an amount of money consisting of both the principal and interest payment.Such instruments are not allowed under shariah because?

Accepted Answer

Shariah prohibits riba (interest or usury) as it creates an unequal exchange between the parties involved in a transaction. Therefore, conventional bonds, which involve interest payments, are not allowed under Islamic finance principles.

Question 14

A construction company is looking at a new project,but requires finance to pay for materials.They approach an Islamic bank who agree to buy the materials and resell it to the company on credit.What is this type of contract called?

Accepted Answer

This contract is called Murabahah, which is a type of sale contract where the seller (in this case, the Islamic bank) discloses the cost of the item being sold and adds a profit margin, which becomes the selling price. The buyer (construction company) then purchases the item on credit, paying the agreed-upon price over a set period of time.

Question 15

Ijarah represents what percentage of total Islamic finance portfolios?

Accepted Answer

According to a survey conducted by the Islamic Financial Services Board in 2020, Ijarah represents 20% of total Islamic finance portfolios.

Question 16

The main difference between 'takaful' and conventional insurance is?

Accepted Answer

The main difference between takaful and conventional insurance is the ratio of risk sharing. In takaful, participants pool their funds together to bear the risk of unforeseen events, and any surplus or profits are shared among them. Conventional insurance, on the other hand, is a contract between the insurer and policyholder, where the insurers assume the risk and the policyholder pays premiums. The profits made by the insurer are not shared with policyholders.

Question 17

A 'Sukuk' or Islamic bond differs from a conventional bond,because?

Accepted Answer

A conventional bond is a form of debt whereas a sukuk is an asset-based investment where the investor owns an interest in an underlying asset in proportion to their investment. This means that the investor receives a share of the profits generated by the underlying asset, rather than interest on the investment, which is not compliant with Islamic finance principles.

Question 18

Which of the following describes Ijarah ?

Accepted Answer

Ijarah is a type of Islamic finance contract where an Islamic bank buys a durable asset and leases it to the customer for a rental payment based on a prearranged schedule. This is a form of asset-based financing where the bank owns the asset during the leasing period, and the customer has access to the asset for a specified period of time. At the end of the leasing period, the customer may have an option to purchase the asset at a predetermined price.

Question 19

During the 2008 financial crisis Islamic banks were initially more resilient to financial losses.Which of the following is not true?

Accepted Answer

Islamic banks are not prohibited from trading in stocks. In fact, they have a specific type of investment called "equity financing" which involves owning and sharing profits and losses with the businesses they invest in.

Question 20

Islamic finance is perceived to suffer from a lack of international standardization.Which two organizations are working to develop standardized rules and products?

Accepted Answer

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and the Islamic Financial Services Board (IFSB) are the two organizations working to develop standardized rules and products for Islamic finance.

Quiz 28: Islamic Finance