Introduction to Islamic Capital Markets
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Questions and Answers

The Islamic Capital Market operates free from activities prohibited by Islam, such as riba and maysir.

True (A)

In the Islamic equity market, only conventional stocks can be traded.

False (B)

Islamic Unit Trusts Funds are considered a product of the Islamic Capital Market.

True (A)

The Islamic Capital Market is primarily concerned with short-term investments and quick profits.

<p>False (B)</p> Signup and view all the answers

All transactions in the Islamic Capital Market must comply with Islamic law.

<p>True (A)</p> Signup and view all the answers

Islamic capital market products are designed based on Shari’a law.

<p>True (A)</p> Signup and view all the answers

The Islamic capital market permits transactions involving gambling and alcohol.

<p>False (B)</p> Signup and view all the answers

Islamic banks charge interest on their financing activities.

<p>False (B)</p> Signup and view all the answers

Bonds in the conventional market are considered Shari’a-compliant.

<p>False (B)</p> Signup and view all the answers

Venture capital companies in Islamic finance typically take equity stakes and management control.

<p>True (A)</p> Signup and view all the answers

Sukuks are a form of interest-based debt instruments in Islamic finance.

<p>False (B)</p> Signup and view all the answers

Islamic finance promotes the concept of profit and loss sharing.

<p>True (A)</p> Signup and view all the answers

Activities that support money laundering are prohibited in Islamic capital markets.

<p>True (A)</p> Signup and view all the answers

Islamic capital market activities conflict with the principles of Islam.

<p>False (B)</p> Signup and view all the answers

Sukuk is one of the investment papers available in the Islamic capital market.

<p>True (A)</p> Signup and view all the answers

The Islamic capital market has a maturity period of less than 1 year.

<p>False (B)</p> Signup and view all the answers

The Shariah Advisory Council (SAC) plays a crucial role in the Islamic capital market.

<p>True (A)</p> Signup and view all the answers

The Islamic capital market prohibits investment in any form of trading.

<p>False (B)</p> Signup and view all the answers

Islamic real estate investment trusts are not permitted in the Islamic capital market.

<p>False (B)</p> Signup and view all the answers

Islamic capital markets operate independently of conventional markets.

<p>False (B)</p> Signup and view all the answers

Shariah compliant stocks can be traded in the Islamic capital market.

<p>True (A)</p> Signup and view all the answers

Flashcards

Islamic Capital Market (ICM)

A market where investment activities and products comply with Islamic principles, avoiding interest and encouraging ethical trade.

Shariah Advisory Council (SAC)

A body that ensures financial products and activities in the ICM adhere to Islamic Shariah law. They provide guidance and approval.

Shariah Compliant Products

Financial instruments that comply with Islamic principles, offering interest-free alternatives to conventional investments.

Sukuk

Bonds that comply with Islamic law, often issued for infrastructure or property development.

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Shariah Compliant Stocks

Stocks of companies that adhere to Islamic guidelines, often in industries like technology or healthcare.

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Shariah Exchange Traded Funds (ETFs)

A type of fund that invests in Shariah-compliant securities, providing a diversified portfolio for ethical investors.

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Shariah-Based Unit Trust Funds

Mutual funds that invest in assets that comply with Islamic principles, offering a way to invest in Shariah-compliant investments.

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Islamic Real Estate Investment Trusts (REITs)

Real estate investment trusts that focus on properties that are in line with Islamic principles.

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What is the Islamic Capital Market?

A financial market where securities are traded adhering to Islamic principles, prohibiting activities like interest (riba), gambling (maysir), and uncertainty (gharar).

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What is the Islamic Equity Market?

Islamic equity market is a segment where stocks that comply with Islamic law are traded. It involves both primary and secondary market transactions.

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Example of products in the Islamic Capital Market

Islamic Unit Trusts Funds, Islamic Real Estate Investment Trusts, and Shariah-compliant Securities are all products found within the Islamic Capital Market.

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What are some products of the Islamic Equity Market?

Examples of Islamic equity market products include Shariah-compliant stocks and funds investing in companies involved in halal activities.

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Where does the Islamic equity market operate?

The Islamic equity market operates within both primary and secondary markets, allowing for both initial public offerings and subsequent trading of Shariah-compliant securities.

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What are Islamic Finance instruments?

Shariah-compliant instruments in finance, adhering to Islamic principles like no interest and profit-sharing, designed to facilitate investment and economic activity.

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What is an Islamic Capital Market?

A financial market based on Islamic principles, where financial products and transactions comply with Shariah law, focusing on ethical and socially responsible investment practices.

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What is the core principle of Islamic Finance?

The foundation of Islamic finance, prohibiting interest-based lending and promoting profit-sharing (risk-sharing) arrangements.

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What are Sukuk?

Debt instruments that comply with Islamic law, offering investors a share in an underlying asset's profits or losses, eliminating interest-based returns.

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What activities are prohibited in Islamic finance?

Financial activities forbidden in Islamic finance, such as gambling, alcohol, pork, and financing unethical ventures.

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What is Profit and Loss Sharing (PLS) in Islamic finance?

A key aspect of Islamic finance, focusing on equity participation and profit-sharing, where investors and businesses share both profits and losses.

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How does Islamic finance differ from conventional finance?

A capital market structure adhering to Islamic law, emphasizing ethical investment practices and prohibiting interest-based lending, promoting profit-sharing and other Shariah-compliant tools.

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What is Shariah?

A comprehensive system of Islamic law, guiding Muslims' daily life and encompassing principles of ethical conduct, social justice, and financial transactions.

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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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Chapter 1 Introduction to Islamic Capital Market PDF

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.

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