15 Questions
What is the mechanism of Tawarruq?
The Islamic bank purchases an asset from the seller, delivers it to the customer, and then sells the asset to the customer through a Murabaha contract.
Why should the commodity sold in Tawarruq be well-identified?
To ensure that it is distinct from other assets of the seller.
What is the purpose of Tawarruq?
To obtain cash by selling an asset to a third-party purchaser for a spot price.
Why should Islamic banks not perform Tawarruq for the benefit of conventional banks?
To ensure that liquidity is not used for interest-based lending.
Who should the commodity be sold to in Tawarruq to avoid 'Inah?
To a third-party purchaser on a deferred payment basis.
In the process of Tawarruq, what is the purpose of the Islamic bank purchasing an asset from the seller instead of financing in cash?
To facilitate the subsequent sale of the asset to a third-party purchaser
What is the significance of selling the commodity in Tawarruq to a party other than the one from whom it was purchased on a deferred payment basis?
To avoid 'Inah, which is strictly prohibited in Islamic finance
What is the underlying principle behind Islamic banks not performing Tawarruq for the benefit of conventional banks when it discovers their use of liquidity for interest-based lending?
To maintain ethical standards by avoiding involvement in interest-based activities
Why should the commodity sold in Tawarruq be well-identified and distinct from other assets of the seller?
To facilitate subsequent sale to a third-party purchaser and avoid 'Inah
What is the mechanism behind fulfilling the customer's need for liquid cash through Tawarruq?
The Islamic bank purchases an asset from the seller and delivers it to the customer on the spot
True or false: Tawarruq involves purchasing a commodity for a deferred price and selling it to a third party for a spot price to obtain cash
True
True or false: Islamic banks should not perform Tawarruq for the benefit of conventional banks if they discover that such banks are going to use the liquidity for interest-based lending
True
True or false: The commodity sold in Tawarruq must be well-identified and distinct from other assets of the seller
True
True or false: Tawarruq involves selling the commodity to a party other than the one from whom it was purchased on a deferred payment basis to avoid 'Inah
True
True or false: The mechanism of Tawarruq involves the customer selling the asset to a third-party purchaser after getting ownership from the Islamic bank to fulfill the need for liquid cash
True
Test your knowledge about the Tawarruq mechanism in Islamic banking, which involves purchasing an asset for a deferred price and selling it for a spot price to obtain cash. Understand the steps involved in this process and its application in Islamic finance.
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