Bangor Conventional Call Options & Put Options in Islamic Finance Industry Ques

Description

I need Question 3,1 &4 

Question 4

A more recent development in the Islamic finance industry is in the area of Islamic derivative products. Despite the potential, there are of course controversies when Shari’ah compliant versions of derivatives are developed. 

a. The Islamic alternative of interest rate swaps are profit rate swaps, which Islamic financial institutions use in order to mitigate the various types of risk that they face. Explain the difference between interest rate swaps and profit rate swaps. Illustrate how an Islamic profit rate swap works by explaining using your own simple words the stages that occurs through an example. (12.5 marks)

b. What is the alternative of conventional call options and put options in the Islamic finance industry, explain why it is needed in the Islamic finance industry, and provide an explanation on how it works through an example.  (12.5 marks) 

Explanation & Answer length: 3 pages.

COURSE/MODULE NAME OF EXAMINERS IF2104- Islamic Investment Banking Alfatih Gessan PWA (Main – Year 2) Islamic Finance / Banking and Diploma EXAMINATION DATE / TIME EXAMINATION DURATION 2021 3 hours, 10AM to 1PM MATERIALS/EQUIPMENT SUPPLIED BY CENTRE MATERIALS/EQUIPMENT PERMITTED (candidate’s own) One answer booklet None Instructions to candidates This is a 3 hour examination There are three (3) pages in this examination paper SECTION A – Answer 4 out of 5 questions provided Maximum marks available per section Section A: – 100 marks 1 Answer 4 questions from the 5 provided below. Each question is worth 25 marks.

TWO VERY IMPORTANT ADVICE: (1) Be as original as possible. Include your analysis, evaluation, opinions and/or suggestions. Do not rely fully on paraphrasing from references, especially if you don’t reference them properly. (2) Pace yourself and strategize. 3 hours. 4 questions. Make sure to allocate enough time to answer all of them evenly and don’t go overboard in just some.

Question 1 Islamic investment banks differ in various aspects with Islamic commercial banks.

a. Discuss the differences between the two by explaining 4 key differences they have (10 marks). Despite these differences can we put them (and their services) under one roof?

b. How should the maqasid (objectives) Al Shari’ah be ideally linked with Islamic investment banks? (List down the objectives (3) and link each one with Islamic investment banking) (10 marks)

c. Mention 5 investment banks either in Bahrain or abroad. Choose one out of the five which is your favorite and explain why. (5 marks)

Question 2 Sukuk is an Islamic capital market product that has continued its growth in the Islamic finance industry. It has now become the 2nd largest contributor in terms of total assets, after Islamic Banking, with more and more countries, even non-Muslim majority issuing sukuk.

a. Explain 4 differences between a sukuk and a conventional bond? Based on these differences, why would a person (if any) want to choose investing in a sukuk over a conventional bond? (10 marks)

b. Evaluate the differences between an Asset Backed Sukuk and an Asset based Sukuk? A conservative person would choose which one and why? (10 marks)

c. Explain and analyze one sukuk that has been issued in the industry. (5 marks)

Question 3 The first ever Shari’ah screening filter was developed in Malaysia by RHB. Since then there have been various methodologies developed by Shari’ah scholars to differentiate between investment in shares that are considered to be Shari’ah compliant and nonShari’ah compliant

a. Explain the quantitative filters that are applied by the Dow Jones Islamic Market Index and provide a detailed original rationale of why each filter was established. (10 marks) 2

b. The Dow Jones Islamic Index use the 33% rule in their quantitative filters. Where did this rule originate from? Is it important to have a Shari’ah legal foundation for all percentages used? (5 marks)

c. Imagine yourself as a Shari’ah scholar and the mutual fund manager approaches you with the following issue. It turns out that one of the publicly listed companies that the mutual had invested for the past 3 years failed one of the quantitative filter tests. What advice and wise words would you give to the mutual fund manager. Give at least 4. (10 marks)

Question 4 A more recent development in the Islamic finance industry is in the area of Islamic derivative products. Despite the potential, there are of course controversies when Shari’ah compliant versions of derivatives are developed.

a. The Islamic alternative of interest rate swaps are profit rate swaps, which Islamic financial institutions use in order to mitigate the various types of risk that they face. Explain the difference between interest rate swaps and profit rate swaps. Illustrate how an Islamic profit rate swap works by explaining using your own simple words the stages that occurs through an example. (12.5 marks)

b. What is the alternative of conventional call options and put options in the Islamic finance industry, explain why it is needed in the Islamic finance industry, and provide an explanation on how it works through an example. (12.5 marks)

Question 5 Go to the website www.saturna.com/amana. Look at two of their Islamic mutual funds: Amana Developing World and Amana Participation. You can either look at the pages or download their summary prospectus’ and fact sheets. Answer the following related questions (25 marks)

a. What is the size of these funds? Provide a critical comment on the huge gap of size of institutional shares of one fund and the other.

b. Who are the Targeted investors for both funds? Which would you choose and why?

c. Evaluate the funds’ principal investment strategy.

d. Compare and contrast the fees and investment minimum for both funds? Provide a critical comment on your observation.

e. Evaluate the funds’ performance / return. == End of Exam = 3

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