Maqasid al-Shari’ah and Risk Management

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Questions and Answers

What did the Prophet (pbuh) advise the Arab Bedouin in the hadith mentioned?

  • Leave the camel untied and trust in Allah
  • Sell the camel for profit
  • Untie the camel and trust in Allah
  • Tie the camel and trust in Allah (correct)

What concept does risk management have its root in?

  • Ijma
  • Quran
  • Fiqh
  • Hadith (correct)

What is the significance of the hadith about trading the money of orphans?

  • Highlights the importance of paying zakah
  • Emphasizes preserving and growing wealth (correct)
  • Discourages investment
  • Encourages embezzlement

What does the hadith about trading the money of orphans teach about financial transactions?

<p>Encourages fair business practices (B)</p> Signup and view all the answers

How does the hadith regarding tying the camel relate to Islamic principles of risk management?

<p>Advocates a balanced approach to managing risks (A)</p> Signup and view all the answers

What did Abbas ibn Abdul Muttallib stipulate to avoid risk in his mudarabah business?

<p>All of the above (D)</p> Signup and view all the answers

What did Rasulullah (p.b.u.h.) do when he heard about the conditions set by Abbas ibn Abdul Muttallib?

<p>He allowed the conditions (D)</p> Signup and view all the answers

What is one purpose of permitted conditions in mudarabah business according to the text?

<p>To prevent exposure to undue risks (B)</p> Signup and view all the answers

What do well-documented contracts help in enhancing according to the text?

<p>Trust and understanding among parties (C)</p> Signup and view all the answers

In the context of the text, what role does the hadith regarding Abbas ibn Abdul Muttallib play?

<p>It serves as a foundation for restricted mudarabah and risk management (D)</p> Signup and view all the answers

What does Al-Ghazali define maqasid al-Shari’ah as?

<p>Protection of faith, self, intellect, lineage, and wealth (B)</p> Signup and view all the answers

Why is conforming to Shariah principles important in risk management?

<p>To achieve the objective of protecting life, wealth, and dignity (D)</p> Signup and view all the answers

Why is efficient risk management crucial according to the Qura’nic verses mentioned?

<p>To control and mitigate anticipated risks (A)</p> Signup and view all the answers

What is the significance of well-documented contracts in Islamic risk management?

<p>Ensuring clarity and accountability in financial agreements (C)</p> Signup and view all the answers

Why is trust emphasized in financial transactions according to the text?

<p>To foster mutual respect and cooperation (D)</p> Signup and view all the answers

What did Johnson describe risk as in his article?

<p>Element of uncertainty (C)</p> Signup and view all the answers

In Islamic finance, what is a common phenomenon that individuals or companies face?

<p>Rate of return risk (B)</p> Signup and view all the answers

According to Jorion and Khoury, what is risk defined as?

<p>Variability or volatility in unexpected outcomes (B)</p> Signup and view all the answers

Which factor may companies with long-term investments experience during a crisis?

<p>Liquidity risk (C)</p> Signup and view all the answers

What kind of risk cannot be avoided, according to the text?

<p>Systematic risk (D)</p> Signup and view all the answers

What is a common practice for export-oriented companies to minimize the risk of fluctuating exchange rates?

<p>Utilizing hedging instruments (C)</p> Signup and view all the answers

Why is it important for Islamic capital markets to have explicit and transparent methods for minimizing risk?

<p>To ensure better investor positioning (C)</p> Signup and view all the answers

What is the key role of risk management strategies in Islamic financial sectors?

<p>To soothe investors concerned about Shari’ah principles (C)</p> Signup and view all the answers

What is one of the main objectives of Shari’ah, as mentioned in the text?

<p>Protecting the wellbeing and alleviating the hardship of humankind (B)</p> Signup and view all the answers

How does sound risk management benefit both markets and investors according to the text?

<p>By bolstering the market competitiveness (D)</p> Signup and view all the answers

Why does Islamic commercial law require witnesses in financial agreements?

<p>To ensure that all parties agree to the terms of the contract (D)</p> Signup and view all the answers

What is the core objective of attestation in Islamic commercial law according to the text?

<p>To mitigate the risk of parties denying agreed terms (A)</p> Signup and view all the answers

In Islamic commercial law, why is it permissible for a creditor to receive collateral during a journey when a debt is involved?

<p>To mitigate credit risk in case the debtor fails to fulfill obligations (D)</p> Signup and view all the answers

How does the aforementioned verse emphasize the importance of trust in financial transactions?

<p>By highlighting the need for effective steps to prevent fraudulence and losses (C)</p> Signup and view all the answers

What is the significance of risk management in financial transactions based on the text?

<p>Mitigating disputes and differences of opinion over agreed conditions (B)</p> Signup and view all the answers

What did Prophet Yusuf advise the king of Egypt to do in order to manage the risk of the upcoming drought?

<p>Develop an economic strategy to actively plant crops and store proceeds during the prosperous years (A)</p> Signup and view all the answers

What is required in a financial transaction according to the Quranic verse mentioned?

<p>Attestation by contracting parties in a specified term debt (A)</p> Signup and view all the answers

What is the significance of having a scribe write down financial transactions according to the Quranic verse?

<p>Ensures justice and prevents disputes (B)</p> Signup and view all the answers

In the context of risk management, why is it important to fear Allah while entering into financial agreements?

<p>To uphold ethical standards and honesty in transactions (B)</p> Signup and view all the answers

What role does a guardian play in a financial agreement according to the Quranic verse mentioned?

<p>May dictate on behalf of someone with limited understanding (C)</p> Signup and view all the answers

Why is it important to write down financial transactions according to the content provided?

<p>To have a record that can be referred back to in case of disputes (B)</p> Signup and view all the answers

How did implementing Prophet Yusuf's advice help Egypt survive the seven years of drought?

<p>By actively planting crops and storing proceeds during the prosperous years (D)</p> Signup and view all the answers

Why is it crucial for both parties to be involved in documenting financial transactions?

<p>To ensure shared responsibility and transparency (C)</p> Signup and view all the answers

What is the primary purpose of contracting parties attesting to a debt for a specified term according to the Quranic verse?

<p>To uphold justice in financial agreements (C)</p> Signup and view all the answers

In managing risks, how does having witnesses involved benefit financial agreements?

<p>Provides additional verification and credibility to transactions (A)</p> Signup and view all the answers

What is one of the reasons that shari'ah scholars may need to reconsider their fatawa on the sale of shares?

<p>There is gharar involved in the sale of shares (A)</p> Signup and view all the answers

From a legal and practical viewpoint, if shares are not asset-backed, what issue might arise in the transaction?

<p>Riba (C)</p> Signup and view all the answers

In terms of Islamic jurisprudence, which school seems to provide leeway for the sale of shares if certain conditions are met?

<p>Maliki (C)</p> Signup and view all the answers

What is one key point made about the nature of shares from an accounting perspective?

<p>Shares are considered assets for shareholders (A)</p> Signup and view all the answers

What concept discussed in the text suggests that 'urf, or customs, should be taken into account when considering the sale of shares?

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

What is a condition set by shari’ah scholars for firms developing Islamic index?

<p>Regular submission of audit reports and accounts of listed companies (A)</p> Signup and view all the answers

Why do shari’ah scholars suggest reviewing the accounts of subsidiary companies?

<p>To identify un-Islamic transactions that may align with ratios (C)</p> Signup and view all the answers

What does the Insolvency Act 1986 state about shareholders' entitlement to residual assets?

<p>Shareholders can claim residual assets only if articles of association allow it (C)</p> Signup and view all the answers

What provision can act as a safety valve and a criterion for accepting companies on an Islamic index?

<p>Entitlement to residual assets in the articles of association (C)</p> Signup and view all the answers

Why do Shari’ah auditors need to know the nature of share transactions?

<p>To verify compliance with Islamic principles in transactions (D)</p> Signup and view all the answers

What is the main feature of Islamic finance mentioned in the text?

<p>Asset-backed financial products (B)</p> Signup and view all the answers

When were the earliest criteria for creating an Islamic Share Index formulated?

<p>In 1999 for the Dow Jones Islamic Market Index (A)</p> Signup and view all the answers

What is the purpose of Islamising the stock market indexes mentioned in the text?

<p>To provide halal income options for Muslims (C)</p> Signup and view all the answers

What is a significant characteristic of the FTSE Islamic Index?

<p>Low-debt, non-financial social ethical components (D)</p> Signup and view all the answers

Why have shari’ah scholars established specific criteria for selling shares on the stock exchange?

<p>To allow asset-backed sales in compliance with Islamic principles (B)</p> Signup and view all the answers

What is the main point being made regarding shares and their ownership rights?

<p>Shares are solely personal rights and not asset-backed. (A)</p> Signup and view all the answers

Why is it important to convert 'urf into a shari’ah condition when dealing with shares?

<p>To decrease information asymmetry and reduce gharar in the deal. (B)</p> Signup and view all the answers

How can shari’ah audits of international equity funds benefit buyers of shares?

<p>By informing buyers that their ownership is limited to a bundle of rights. (C)</p> Signup and view all the answers

How can establishing an Islamic Securities House help mitigate risks in the stock exchange market?

<p>By monitoring and advising investment in a volatile market. (D)</p> Signup and view all the answers

What is suggested as a way to improve the filtering criteria for purchasing shares?

<p>Converting 'urf into shari’ah conditions for every share transaction. (D)</p> Signup and view all the answers

What is the main reason for using filters in Islamic finance for shares?

<p>To remove companies with high debt (B)</p> Signup and view all the answers

Why is it important for Islamic finance to consider regulations, fiqh issues, and investment appraisal?

<p>To ensure compliance and proper assessment (C)</p> Signup and view all the answers

Why does the text mention that statistics should compare like-with-like in Islamic finance analysis?

<p>To establish a sensible analysis (A)</p> Signup and view all the answers

In Islamic finance, what is the significance of relying on liquidation aspects to substantiate the asset-backed position of shares?

<p>Strengthens the asset-backed position of shares (B)</p> Signup and view all the answers

What does the text suggest about the dichotomy between secular and Islamic legal systems in the context of Islamic finance?

<p>Further debate on the dependence of Islamic finance over secular law (C)</p> Signup and view all the answers

What does the legal maxim 'majority deserves to be treated as the whole of things' imply in the context of Islamic finance?

<p>Illiquid assets should be a considerable proportion in a combination with liquid assets (C)</p> Signup and view all the answers

Why is the proportion of illiquid assets important in asset-backed transactions according to the text?

<p>To avoid the riba aspect and ensure transactions are permissible (B)</p> Signup and view all the answers

What is the significance of the condition that the price of a combination should exceed the value of its liquid amount in Islamic finance?

<p>To prevent transactions from falling into riba category (D)</p> Signup and view all the answers

In Islamic finance, why is it important for companies to limit interest (or unlawful gains) to less than 5% of total revenue?

<p>To ensure compliance with Shariah principles (B)</p> Signup and view all the answers

What financial criterion must a company meet to be included in an Islamic share index according to the text?

<p>Ensuring interest (or unlawful gains) represent less than 5% of total revenue (C)</p> Signup and view all the answers

What shift is highlighted in the text regarding ownership and liability?

<p>Shift from ownership to liability (D)</p> Signup and view all the answers

What is the main legal consequence of differentiating between personal shareholder rights and company real rights?

<p>Consequential impact on Islamic law (A)</p> Signup and view all the answers

Why is covering the concept of dealing in shares and stock market important in academic debates?

<p>To protect investors and ensure compliance with Islamic principles (A)</p> Signup and view all the answers

What aspect of companies needs to be considered to be listed on the London Stock Exchange according to the text?

<p>Meeting certain conditions (C)</p> Signup and view all the answers

What additional research area does the text suggest beyond fiqh and legal aspects of shares and corporations?

<p>Development of Islamic indices (D)</p> Signup and view all the answers

What concept has not been thoroughly debated in academic works regarding shares and corporations?

<p>Permissibility of shares in Islamic context (C)</p> Signup and view all the answers

What proposed model has not been discussed according to George (2003) in the text?

<p>Islamic Securities House within secular stock exchanges (A)</p> Signup and view all the answers

Why is it important to differentiate between personal shareholder rights and company real rights?

<p>To understand the impact on Islamic law (A)</p> Signup and view all the answers

Why is it essential for investors to be protected and investments canalized in the proper Islamic direction?

<p>To ensure compliance with ethical standards (A)</p> Signup and view all the answers

What area warrants parallel research along with the fiqh and legal aspects of shares?

<p>Development of Islamic indices (D)</p> Signup and view all the answers

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