Islamic Derivatives Presentation Provides Overview of Key Concepts

ISLAMIC DERIVATIVES ,[object Object],[object Object]

INTRODUCTION ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Islamic Methodology towards Innovation Permanent (Al-Thawabit) Changeable ( Al-Mutaghayyarat )

ISLAMIC DERIVATIVES ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Hedging Products ,[object Object],[object Object],[object Object],[object Object]

PROFIT RATE SWAP ,[object Object],[object Object],[object Object],[object Object]

ISLAMIC PROFIT RATE SWAP ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

THE DYNAMICS OF IPRS ,[object Object],Receives fixed returns Financial Liabilities Financial Assets Islamic Swap Counter Party Receives floating profit rate Pays floating obligations Pays fixed profit rate

[object Object],ABC Islamic Swap Counter Party ASSET STEP 1 ABC sells Asset to Islamic Swap counter Party at notional principal of RM500k. STEP 2 Islamic Swap Counter Party sells Asset to ABC at notional principal RM500k + mark-up based on fixed profit rate STEP 3 Notional principal amount of RM500k owed by both ABC and Islamic Swap party to each other is set off STEP 4 The net difference i.e. the fixed profit rate in Step 2 is paid to Islamic Swap counter Party by ABC at the agreed interval payment date of say 6 month

[object Object],STEP 1 ABC sells Asset to Islamic Swap counter Party at notional principal RM500k + floating profit rate. STEP 2 Islamic Swap counter Party sells Asset to ABC at notional principal of RM500k. STEP 3 Notional principal amount of RM500k owed by both ABC and Islamic Swap party to each other is set off STEP 4 The net difference i.e. the floating rate profit in Step 1 is paid to ABC by Islamic Swap counter Party at the agreed interval payment date of say 6 month ABC Islamic Swap Counter Party ASSET

[object Object],Floating Profit Rate (Stage 2) is repeated every 6 months until maturity. 6 MONTHS 6 MONTHS 6 MONTHS 6 MONTHS MATURIT Y ABC Islamic Swap Counter Party ASSET

ISLAMIC PROFIT RATE SWAP ,[object Object],[object Object],[object Object],[object Object]

FUTURE CONTRACT & ISLAMIC FINANCE ,[object Object],[object Object],[object Object],[object Object]

Features of Ba’i Salam ,[object Object],Objective Difference

[object Object],Features of Ba’i Salam Beneficial to the seller The predetermined price is normally lower than the prevailing spot price

[object Object],Features of Ba’i Salam One sided-Counter party risk It is the buyer who faces the seller’s default risk .

Features of Istisna ,[object Object],Price of Product Agreed upon & Fixed . Termination Cancelled before production begins . Payment Time of Delivery

Joala Contracts ,[object Object]

[object Object],[object Object],CROSS CURRENCY SWAP

Terms and Conditions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Three Stages of CCS 1)- Spot Exchange of Principal 3)- Re-exchange of principal at the maturity of the contract 2)- A continuing exchange of interest payments during the swap's life

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],Reverse Murabaha(Tawarruq)

OPTIONS IN ISLAMIC FINANCE ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],P LB P 0 P * P UB

[object Object],[object Object],[object Object],OPTIONS IN ISLAMIC FINANCE

[object Object],OPTIONS IN ISLAMIC FINANCE Not A Zero Sum Game Contract avoids “Riba and Gharar”

C ONCLUSION ,[object Object],Evaluation on precedence Absent for the risk management problems faced today Objective Micro-examination instead of intend and societal benefit Differing Sects Convergence Required

Islamic Derivatives Presentation Provides Overview of Key Concepts

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