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Questions and Answers
The Islamic Capital Market operates free from activities prohibited by Islam, such as riba and maysir.
The Islamic Capital Market operates free from activities prohibited by Islam, such as riba and maysir.
True
In the Islamic equity market, only conventional stocks can be traded.
In the Islamic equity market, only conventional stocks can be traded.
False
Islamic Unit Trusts Funds are considered a product of the Islamic Capital Market.
Islamic Unit Trusts Funds are considered a product of the Islamic Capital Market.
True
The Islamic Capital Market is primarily concerned with short-term investments and quick profits.
The Islamic Capital Market is primarily concerned with short-term investments and quick profits.
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All transactions in the Islamic Capital Market must comply with Islamic law.
All transactions in the Islamic Capital Market must comply with Islamic law.
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Islamic capital market products are designed based on Shari’a law.
Islamic capital market products are designed based on Shari’a law.
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The Islamic capital market permits transactions involving gambling and alcohol.
The Islamic capital market permits transactions involving gambling and alcohol.
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Islamic banks charge interest on their financing activities.
Islamic banks charge interest on their financing activities.
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Bonds in the conventional market are considered Shari’a-compliant.
Bonds in the conventional market are considered Shari’a-compliant.
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Venture capital companies in Islamic finance typically take equity stakes and management control.
Venture capital companies in Islamic finance typically take equity stakes and management control.
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Sukuks are a form of interest-based debt instruments in Islamic finance.
Sukuks are a form of interest-based debt instruments in Islamic finance.
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Islamic finance promotes the concept of profit and loss sharing.
Islamic finance promotes the concept of profit and loss sharing.
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Activities that support money laundering are prohibited in Islamic capital markets.
Activities that support money laundering are prohibited in Islamic capital markets.
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Islamic capital market activities conflict with the principles of Islam.
Islamic capital market activities conflict with the principles of Islam.
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Sukuk is one of the investment papers available in the Islamic capital market.
Sukuk is one of the investment papers available in the Islamic capital market.
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The Islamic capital market has a maturity period of less than 1 year.
The Islamic capital market has a maturity period of less than 1 year.
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The Shariah Advisory Council (SAC) plays a crucial role in the Islamic capital market.
The Shariah Advisory Council (SAC) plays a crucial role in the Islamic capital market.
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The Islamic capital market prohibits investment in any form of trading.
The Islamic capital market prohibits investment in any form of trading.
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Islamic real estate investment trusts are not permitted in the Islamic capital market.
Islamic real estate investment trusts are not permitted in the Islamic capital market.
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Islamic capital markets operate independently of conventional markets.
Islamic capital markets operate independently of conventional markets.
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Shariah compliant stocks can be traded in the Islamic capital market.
Shariah compliant stocks can be traded in the Islamic capital market.
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Study Notes
Introduction to Islamic Capital
- Aims to introduce the topic of Islamic capital.
- The lesson includes financial market development, introduction to Islamic capital markets, and the differences between Islamic and conventional capital markets.
1.1 The Financial Market Development
- The emergence of informal share broking activities started in the 1880s.
- Trading occurred in locations like colonial clubs and coffee shops.
- Notable companies traded included Guthrie & Co, Fraser & Co, Inch Kenneth Rubber Ltd, and Sime Darby & Co.
- The Wall Street crash of 1929 marked the start of the Great Depression.
- 1938 saw the re-registration of the SSA as the Malayan Stockbrokers Association, introducing self-regulatory guidelines for trading.
- The Employees Provident Fund (EPF) was formed in 1951, encouraging private investment funds.
- 1959 marked the establishment of the Central Bank of Malaya.
- Malayan Stock Exchange was created in 1960.
- 1973 saw the separation of the Stock Exchange of Malaysia and Singapore.
- Kuala Lumpur Commodity Exchange (KLCE) was established in 1980.
- Bank Islam Malaysia Bhd was established in 1983.
- 1984 saw the establishment of Syarikat Takaful Malaysia Bhd, the first takaful operator in the country.
- The Securities Commission was set up in 1993.
- 1994 saw the introduction of the Islamic Inter-bank money market.
- An Islamic capital market unit was established by the Securities Commission (SC) in 1995.
- The SC established to the Syariah Advisory Council (SAC) in 1996.
- Bursa Malaysia was renamed in 2004.
1.2 Introduction to Islamic Capital Market
- Islamic capital market (ICM) is a market where investments and financing activities are structured according to Shariah principles.
- Bursa Malaysia defines ICM as markets where activities are conducted in a way that does not conflict with Islamic principles.
- Islamic capital markets are crucial for the Islamic financial system, as they prohibit interest and encourage trade.
1.3 Differences between Islamic and Conventional Capital Market
- Shariah Framework: Islamic capital market products are designed based on Shariah law.
- Shari'a scholars ensure adherence to Islamic laws through guidance.
- Conventional capital markets are not based on religious laws or guidelines.
- Prohibited Transactions: Islamic capital markets restrict investments in companies involved in activities like gambling, alcohol, pornography, and arms sales.
- Financing: Islamic banks provide capital for projects based on equity participation. Profit is shared based on an agreed-upon ratio; any losses are also shared.
- Venture capital companies and investment banks usually acquire management control and equity shares.
- Prohibition of Interest: Islamic capital markets prohibit the charge of interest. Conventional capital markets allow the charge of interest.
- Sukuk-Bond Market: Sukuk bonds are backed by underlying Shariah-compliant assets.
- Conventional bonds are based on debt that is payable at maturity according to interest-based lending principles
Q&A
- Fundamentals of Islamic Finance: Islamic finance focuses on no interest-based lending, profit and loss sharing, and the concept of "one buyer, one seller."
- Islamic Capital Market: An Islamic capital market is a market where securities are traded and all transactions are compliant with Islamic law. It offers opportunities for long-term investments, risk sharing, and diversification. It is free from activities prohibited by Islam (riba, maysir, and gharar).
- Examples of Products in Islamic Capital Market: Islamic Unit Trusts Funds, Islamic Real Estate Investment Trusts and Shariah-compliant Securities.
- Islamic Equity Market: It's a market to trade Sharia-compliant stocks in primary and secondary markets. It avoids investments in activities prohibited in Islam (gambling, alcohol, and conventional banking).
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Description
Explore the foundations of Islamic capital markets and differentiate them from conventional markets. This quiz covers the development of financial markets, key historical milestones, and the emergence of self-regulatory frameworks. Test your knowledge on the evolution of capital markets in an Islamic context.
