Deck 6: Islamic Asset and Fund Management

Question 1

Wealth management involves investment and advisory services.

Answer 1

True

Question 2

Islamic investing encompasses conventional insurance and derivatives.

Answer 2

False

Question 3

Among the most prominent Islamic indices are FTSC Global Islamic Index and S&P Global Investable Sharī'ah Index.

Answer 3

True

Question 4

A stock market index is used to measure fluctuations in the performance of stocks in a financial market.

Question 5

The necessity of financial planning and asset management is documented in Holy Qur'an in order to prevent unforeseen economic recession at both the individual and communal levels.

Question 6

Wealth in Islam is considered an end rather than a means to an end.

Question 7

There is a rule of thumb that applies in all cases on the screening methodology for selecting Sharī'ah -compliant stocks.

Question 8

Financial returns on money must bear the two inseparable features of Islamic investing, i.e. fairness and profit.

Question 9

Having a job is the preferred means for generating halal income and acquiring wealth in Islam.

Question 10

A reduced interest rate to a minimal 0.1% is not prohibited in Islam since it is not considered an excessive interest rate.

Question 11

The major requirement in Islamic investment is Sharī'ah compliance at every step of the investment selection process.

Question 12

Selection of Islamic stocks for investing involves a process of Sharī'ah screening to ensure the compatibility of the stock with the permissible forms of investments in the Sharī'ah.

Question 13

The commonly used financial screening strategy determines the total interest income/total revenues to be less than 30%.

Question 14

The commonly used financial screening strategy determines the total account receivables/total assets to be less than 45%.

Question 15

The uncertainty and contingency in contracts such as short selling and derivatives are permitted in Islam when they are properly streamlined to reflect the mandatory requirements of the Sharī'ah.

Question 16

Securities are traded in a place called a financial stock exchange, where buyers and sellers of securities trade in this organized supermarket.

Question 17

Stock Exchange market must be international in its scope.

Question 18

Speculative investment activities may involve both uncertainty gharar. and gambling maysir., and both are prohibited in Islam.

Question 19

Generally, there is only one market index for all sectors of the economy in any given country.

Question 20

The commonly used financial screening strategy determines the total debt/market capitalization to be less than 5%.

Question 21

In a commodity fund, the income realized from the resale of commodity is distributed pro-rated to the subscribers accordingly after deducting the managerial expenses.

Question 22

The term "venture capital" covers only the financial capital required to set up a firm.

Question 23

Sharī'ah compliance of firms that may engage in mergers, acquisition or divestures, should be re-scrutinized periodically.

Question 24

The subscribers to the ijarah fund are issued certificates commonly known as sukuk in Islamic finance.

Question 25

Any clause or contractual term that does not contradict the Sharī'ah, regardless of its origin, will be accepted as being Sharī'ah-compliant.

Question 26

Under the structure of Islamic venture capital fund, individual and institutional investors would act as the "general partners" while private equity experts are considered as the "limited partners".

Question 27

Islamic fund managers are allowed to speculate but not to undertake any unnecessary risks

Question 28

Conventional Venture Capital Funds are usually invested in a pool of venture capital projects thus allowing the benefits of diversification.

Question 29

Sukuk are negotiable instruments that cannot be traded in the secondary market.

Question 30

Mortgage REITs engage in a wide range of real estate activities, including leasing, development of real property and tenant services.

Question 31

Usually, private equities engage in non-exchange traded or illiquid investment strategies.

Question 32

Conventional Venture Capital Funds are structured as closed-end funds.

Question 33

Zakat may be used as a form of purification technique to dispose the portion of income resulted from interest-related dealings.

Question 34

There is a common consensus among Muslim jurists that purification is required in all capital gain earnings.

Question 35

The vast majority of modern Shari'ah scholars believe it's possible to have Islamic hedge funds.

Question 36

Commodity funds involve murabahah operations, iarah contracts or bai bithaman ajil.

Question 37

Islamic equity funds occupy a preferential position among the Islamic investment funds.

Question 38

The first Islamic hedge fund launched in the world is Altaquah US Equity Hedge Fund, in 1993 by Saudi Economic and Development Company SEDCO. and the Permal Group.

Question 39

It is permissible for Islamic investment funds to engage in sale and repurchase agreements i.e., repos or buy-backs..

Question 40

Private equities usually invest in a portfolio of growth companies and tend to hold them for shorter time horizon.

Question 41

All of the following are fundamentals of Islamic investing EXCEPT:

A) the exclusion of all interest-bearing riba. products, services or investment
B) avoiding speculative investments
C) no risk
D) socially responsible / ethical investing

Question 42

Each and every member of the Sharī'ah board should be compensated in the same manner to avoid conflict of interest.

Question 43

In recent times, some murabahah- and arbun-based solutions have been applied to mitigate risk exposure in currency, equity and commodity funds.

Question 44

Islamic Venture Capital Funds and equity funds are the most prominent investment techniques in Islamic investment.

Question 45

Franchising is not recommended between Islamic funds and other Islamic financial institutions.

Question 46

The Sharī'ah advisory board must guide potential investors to the best product according to the prevailing market indices.

Question 47

An effective investment strategy for Islamic fund managers is to diversify their portfolio in terms of industrial sectors or geographical concentrations.

Question 48

Any prospective new product should be cross-checked for Sharī'ah compliance in the first instance by the product development manager and then followed by the board of directors.

Question 49

In addition to the regular disclosure of financial reporting and other management information, Islamic funds require the disclosure of Sharī'ah compliance information.

Question 50

Whether an institution has a board or a single supervisor is its own choice.

Question 51

AAOIFI requires a minimum of FIVE members for the Sharī'ah supervisory board.

Question 52

Liquidity risk for investment funds arises from price volatility of the securities under investment.

Question 53

Islamic fund managers essentially replicate some of the basic risk management strategies applied in conventional investment funds.

Question 54

Islamic investment funds may enter into joint venture agreements with other Islamic banks or conventional banks to create newer exposure to prospective investors in other geographical locations.

Question 55

Basically, there are no additional risk management issues associated with the Islamic funds and their products.

Question 56

One important liquidity issue that Islamic fund managers face is the investment exit strategy.

Question 57

All of the following statements about the attitude of Islam towards income and wealth are true EXCEPT:

A) human beings, as the owners of the earth's resources, have the free will to utilize the earth and its endowments as they wish
B) Islam encourages exerting effort to own wealth through legitimate investment
C) productive business activities are the preferred means for generating halal income and acquiring wealth
D) Muslims prefer Sharī'ah-compliant investments in order to purify their wealth and comply with their religious beliefs

Question 58

Due to the surplus of liquidity in the Islamic fund market, Islamic Fund managers are protected against the possibility of higher cash out-flow during the downward markets when individual investors may wish to liquidate their position.

Question 59

The conception of fund of funds may be a less efficient technique for Islamic funds due to the number of Islamic funds as well as the higher commissions and fees involved.

Question 60

Islamic fund management, as an infant industry, is going through a transitional phase in terms of its functional structure, marketing, and distribution systems.

Question 61

Fund managers must do all the following EXCEPT:

A) ensure that their clients' investments are free from all forms of interest- bearing products
B) respect the specific requirements of Muslim investors who prefer Sharī'ah-compliant products
C) promise their clients an acceptable rate of return on their investments
D) must ensure that the contractual terms agreed with their clients conform to the principles of Islamic law

Question 62

The following forms of interest are prohibited in Islam under the prohibition rule:

A)fixed or floating
B) simple or compound
C) "nominal" or "excessive"
D) all of the above

Question 63

All of the following are mechanisms for fulfilling social obligation EXCEPT:

A) zakat compulsory alms.
B) sadaqah voluntary alms.
C) musharakah mutanaqisah diminishing musharakah.
D) takaful Islamic cooperative insurance.

Question 64

The investment selection process of stocks for Islamic investment funds go through a systematic approach of:

A) industry screen
B) financial screen
C) purification
D) all of the above

Question 65

Which of the following ratios regarding the frequently used financial screening strategy, as benchmark, is correct?

A) total debt/market capitalization < 33%
B) interest income/total revenues < 5%
C) account receivables/total assets < 45
D) all of the above

Question 66

Which of the following is not an example of prominent International Stock Exchanges?

A) the Honk Kong Stock Exchange
B) the London Stock Exchange
C) the Kuala Lumpur Stock Exchange KLSE.
D) Dubai Stock Exchange

Question 67

_____________ were introduced to set benchmarks for Sharī'ah-compliant products.

A) financial standards
B) Islamic indexes
C) stock exchanges
D) none of the above

Question 68

The practice wherein Sharī'ah boards permit the transaction of stocks while benchmarks are occasionally breached up to a given approved level is called:

A) short-term non-compliance with industry or financial screens
B) temporary non-compliance with industry or financial screens
C) permanent non-compliance with industry or financial screens
D) none of the above

Question 69

Industry screens for Sharī'ah compliance include

A) alcohol, tobacco, and pork-related products
B) conventional financial services
C) entertainment
D) All of the above

Question 70

_________________ is a statistical method of measuring a section of the stock market by compiling the share prices of representative stocks.

A) stock exchange
B) stock market index
C) floating exchange rate
D) return on investment

Question 71

The structure of Islamic equity fund may be based on either:

A) a mudarabah or musharakah contract
B) a mudarabah or murabaha contract
C) a musharakah or murabaha contract
D) a mudarabah or musharakah or murabaha contract

Question 72

The major Islamic investment funds commonly used by Islamic funds manager include:

A) Islamic debt funds
B) Islamic equity funds
C) alternative investments
D) all of the above

Question 73

_____________for the Islamic funds entail that if an Islamic fund observes that a portion of its income comes from interest-related dealings, then the fund must dispose that portion of its income through charity in order to cleanse the fund earnings.

A) separation
B) integration
C) purification
D) screening

Question 74

Which one of the following funds is among the four major Islamic investment funds commonly used by an Islamic funds manager?

A) Islamic hedge funds
B) special asset classes
C) mixed funds
D) public equity funds

Question 75

The following are forms of funds under the alternative investments commonly practiced in the Islamic finance EXCEPT:

A) private equity fund
B) Islamic venture capital fund
C) Islamic debt funds
D) real estate funds or real estate investment trusts REITs.

Question 76

Which of the following statements. about Islamic investing is/are true?

A) there is a serious emphasis on ethical investing in Islam
B) financial returns on money must bear the two inseparable features of Islamic investing, i.e. fairness and socio-economic justice
C) conventional insurance and derivatives are permissible in Islamic investing
D) all of the above

Question 77

The most prominent Islamic indexes are:

A) the Dow Jones Market Index
B) FTSC Global Islamic Index
C) S&P Global Investable Sharī'ah Index
D) all of the above

Question 78

The Islamic investment selection process of Islamic funds include the following steps EXCEPT:

A) sector screen
B) financial screen
C) assessment of the size of the fund to be invested
D) purification of income distributions

Question 79

_____________are generally structured as private limited companies with few large-capital individuals or institutional investors as stakeholders.

A) private equities fund
B) Islamic venture capital fund
C) Islamic debt funds
D) special asset classes

Question 80

The certificate or document given to the subscribers that documents their rate of ownership in the joint fund may be called

A) "shares"
B) "units"
C) "instruments"
D) all of the above