Islamic Capital: Chapter 1 Overview

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Questions and Answers

What is a key characteristic of the Islamic Capital Market?

It primarily focuses on short-term investments.

All transactions and activities adhere to Islamic law. (correct)

It allows usury in certain financial transactions.

It operates under conventional banking regulations.

Which product is specifically associated with the Islamic Capital Market?

Futures Contracts

Shariah-compliant Securities (correct)

Mainstream Stock Options

Conventional Investment Funds

What defines the Islamic equity market?

It includes stocks from any sector as long as they are traded.

It allows investments in alcohol-related companies.

It is limited to Shariah-compliant stocks only. (correct)

It includes both Islamic and non-Islamic financial products.

Which of the following is prohibited in Islamic Capital Market transactions?

Engaging in activities related to gambling. Signup and view all the answers

What is a primary focus of investing in the Islamic Capital Market?

Promoting investments aligned with Islamic ethical standards. Signup and view all the answers

What distinguishes the Islamic capital market from the conventional capital market?

It operates within Shariah principles. Signup and view all the answers

Which of the following is NOT a characteristic of the Islamic capital market?

It includes speculative transactions. Signup and view all the answers

What is the role of Shariah Advisory Council (SAC) in the Islamic capital market?

To approve Shariah compliant products. Signup and view all the answers

Which of the following instruments is part of the Islamic capital market?

Sukuk. Signup and view all the answers

How does the Islamic capital market contribute to the economy?

By providing Shariah compliant instruments. Signup and view all the answers

What is typically the minimum maturity period for securities in the Islamic capital market?

1 year. Signup and view all the answers

Why is visibility important in the Islamic capital market?

To attract cross-border transactions. Signup and view all the answers

Which of the following statements about the Islamic capital market is false?

It allows all forms of investment. Signup and view all the answers

What is one key characteristic that differentiates the Islamic capital market from the conventional capital market?

Reliance on Shari’a scholars for compliance Signup and view all the answers

Which type of transactions is prohibited in the Islamic capital market?

Investment in gambling and alcohol companies Signup and view all the answers

How do Islamic banks typically finance projects?

By offering equity capital with shared risks and profits Signup and view all the answers

What is the stance of the Islamic capital market on interest?

Prohibits all forms of interest Signup and view all the answers

What distinguishes Sukuk from traditional bonds in the Islamic capital market?

Sukuk are backed by Shari’a-compliant assets while traditional bonds represent interest-based debt Signup and view all the answers

What concept involves sharing risks and profits in Islamic finance?

Profit and loss sharing Signup and view all the answers

Which activity is permissible in the Islamic capital market?

Investing in Shari’a-compliant technology projects Signup and view all the answers

What is a major restriction placed on stocks in the Islamic capital market?

Stocks of companies involved in unlawful activities are restricted Signup and view all the answers

Study Notes

Chapter 1: Introduction to Islamic Capital

This chapter introduces Islamic capital, covering financial market development, the Islamic capital market, and the differences between Islamic and conventional capital markets.

1.1 The Financial Market Development

The 1880s saw the emergence of informal share dealing alongside commodity trading.
Trading occurred in colonial clubs and coffee shops primarily for plantation and mining company shares.
Notable British companies like Guthrie & Co Ltd, Fraser & Co Ltd, and Inch Kenneth Rubber Ltd were involved early on.
1929 saw the Wall Street Crash and the onset of the Great Depression, impacting financial markets.
1951 marked the establishment of the Employees Provident Fund, a significant step in mobilizing private investment funds.
Through the 1950s to the 1990s, events included the creation of the Malayan Stock Exchange, later becoming the Bursa Malaysia, the establishment of Islamic banks, and the setting up of the Securities Commission among other significant changes and developments.
Other key events include the launch of a Syariah Index, the introduction of a first global sukuk, the launch of the Capital Market Masterplan, first Islamic Real Estate Investment Trusts (REITs).

1.2 Introduction to Islamic Capital Market

The Islamic capital market (ICM) is a market where investment and financing activities adhere to Shariah principles.
Products and activities within the ICM are structured according to Shariah principles.
Bursa Malaysia defines ICM as markets where activities occur without conflicting with Islamic principles.
A key element of ICM is that interest-based transactions are prohibited, and the system emphasizes profit and loss sharing.

1.3 Differences between Islamic and Conventional Capital Market

Shariah Framework: Islamic capital market products are designed based on Shariah law, ensuring adherence to Islamic laws. Scholars provide guidance. Conventional markets are not based on religious laws or guidelines.
Prohibited Transactions: Islamic markets restrict stocks of companies involved in activities like gambling, alcohol, pornography, and arms dealings. Conventional markets do not have these restrictions (except for illegal activities like money laundering).
Financing: Islamic banks primarily operate on an equity basis, sharing profits in a pre-agreed ratio. Conventional financing often relies on interest.
Prohibition of Interest: Islamic capital markets prohibit the charge of interest (riba), a key difference from conventional markets.
Sukuk Bond Market: Sukuks are Islamic bonds backed by assets or projects, unlike conventional bonds which operate on interest.

Q&A (General)

Fundamentals of Islamic finance include no interest-based lending, profit and loss sharing, and the concept of one buyer-one seller.
The Islamic capital market facilitates the trading of securities including long-term investments and risk management aligned with Islamic principles.
Examples of products in the Islamic capital market include Islamic unit trusts, Islamic real estate investment trusts, and Shariah-compliant securities.
The Islamic equity market exclusively involves trading Shariah-compliant stocks and securities, following Islamic principles.

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Description

This quiz explores Chapter 1 of Islamic Capital, focusing on the development of financial markets and the distinctions between Islamic and conventional capital markets. Learn about key events, companies, and milestones that shaped the emergence of Islamic finance from the 1880s to the 1990s.