Islamic Contract Law Principles

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What is the primary reason for Islam's prohibition of riba in Islamic finance?

To promote inflation and unemployment.
To ensure lenders have a fixed return regardless of the borrower's outcome.
To foster an environment based on fairness and justice. (correct)
To encourage unfair practices in financial transactions.

How does the concept of Risk-and-Return Sharing differ from a traditional creditor-debtor relationship?

It encourages partnership and mutual responsibility. (correct)
It disregards the outcome of the financed project.
It involves fixed returns for both parties.
It leads to inflation and unemployment.

Why do Islamic banks have an independent Shari'a supervisory board?

To maximize financial speculation.
To ensure compliance with Islamic principles. (correct)
To ensure all profits go to the bank itself.
To engage in activities violating Shari'a rules.

How does Islam view contractual obligations in the realm of finance?

As an obligation to reduce financial speculation (gharar). (B) Signup and view all the answers

Which element is NOT a force strengthening Islamic finance according to the text?

Encouragement of Financial Speculation (D) Signup and view all the answers

What is the purpose of Shari'a-Approved Activities in Islamic banking according to the text?

To engage only in activities permitted by Islam. (B) Signup and view all the answers

What is the key role of the Shari'a supervisory board in Islamic financial institutions?

To ensure compliance with Shari'a principles and monitor transactions (C) Signup and view all the answers

Which of the following is NOT a key principle of Islamic finance?

Maximizing shareholder wealth (A) Signup and view all the answers

Which of the following is a key factor that has strengthened the growth of Islamic finance in recent years?

Globalization and cross-border transactions (C) Signup and view all the answers

What is the role of the sanctity of contract in Islamic finance?

To ensure that all contracts are legally binding (B) Signup and view all the answers

How does the principle of Gharar (excessive uncertainty) apply in Islamic finance?

It prohibits the use of derivatives and other complex financial instruments (B) Signup and view all the answers

Which of the following is a key objective of Shari'a in Islamic finance?

To promote economic growth and development (A) Signup and view all the answers

Which of the following is NOT a condition necessary for a valid contract according to Shari'a law?

Detailed description of the asset and its transaction price (B) Signup and view all the answers

What is the primary purpose of the Islamic Financial Services Board and the Accounting and Auditing Organization for Islamic Financial Institutions?

All of the above (D) Signup and view all the answers

What is the Shari'a principle of 'Avoidance of Gharar'?

The prohibition of financial transactions involving excessive uncertainty or risk (B) Signup and view all the answers

Which of the following is NOT a necessary condition for a valid contract according to Shari'a law?

Presence of a Shari'a supervisory board (C) Signup and view all the answers

Which of the following is a key force that has strengthened the Islamic finance industry?

Standardization of practices and accounting policies by transnational bodies (B) Signup and view all the answers

What is the primary purpose of the Shari'a principle of 'Avoidance of Gharar'?

To prohibit financial transactions involving excessive uncertainty or risk (A) Signup and view all the answers