Maqasid al-Shari’ah and Risk Management

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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?

Encourages fair business practices Signup and view all the answers

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

Advocates a balanced approach to managing risks Signup and view all the answers

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

All of the above 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?

He allowed the conditions Signup and view all the answers

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

To prevent exposure to undue risks Signup and view all the answers

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

Trust and understanding among parties Signup and view all the answers

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

It serves as a foundation for restricted mudarabah and risk management Signup and view all the answers

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

Protection of faith, self, intellect, lineage, and wealth Signup and view all the answers

Why is conforming to Shariah principles important in risk management?

To achieve the objective of protecting life, wealth, and dignity Signup and view all the answers

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

To control and mitigate anticipated risks Signup and view all the answers

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

Ensuring clarity and accountability in financial agreements Signup and view all the answers

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

To foster mutual respect and cooperation Signup and view all the answers

What did Johnson describe risk as in his article?

Element of uncertainty Signup and view all the answers

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

Rate of return risk Signup and view all the answers

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

Variability or volatility in unexpected outcomes Signup and view all the answers

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

Liquidity risk Signup and view all the answers

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

Systematic risk Signup and view all the answers

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

Utilizing hedging instruments Signup and view all the answers

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

To ensure better investor positioning Signup and view all the answers

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

To soothe investors concerned about Shari’ah principles Signup and view all the answers

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

Protecting the wellbeing and alleviating the hardship of humankind Signup and view all the answers

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

By bolstering the market competitiveness Signup and view all the answers

Why does Islamic commercial law require witnesses in financial agreements?

To ensure that all parties agree to the terms of the contract Signup and view all the answers

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

To mitigate the risk of parties denying agreed terms 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?

To mitigate credit risk in case the debtor fails to fulfill obligations Signup and view all the answers

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

By highlighting the need for effective steps to prevent fraudulence and losses Signup and view all the answers

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

Mitigating disputes and differences of opinion over agreed conditions 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?

Develop an economic strategy to actively plant crops and store proceeds during the prosperous years Signup and view all the answers

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

Attestation by contracting parties in a specified term debt Signup and view all the answers

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

Ensures justice and prevents disputes Signup and view all the answers

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

To uphold ethical standards and honesty in transactions Signup and view all the answers

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

May dictate on behalf of someone with limited understanding Signup and view all the answers

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

To have a record that can be referred back to in case of disputes Signup and view all the answers

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

By actively planting crops and storing proceeds during the prosperous years Signup and view all the answers

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

To ensure shared responsibility and transparency 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?

To uphold justice in financial agreements Signup and view all the answers

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

Provides additional verification and credibility to transactions 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?

There is gharar involved in the sale of shares 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?

Riba 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?

Maliki Signup and view all the answers

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

Shares are considered assets for shareholders 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?

'Urf Signup and view all the answers

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

Regular submission of audit reports and accounts of listed companies Signup and view all the answers

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

To identify un-Islamic transactions that may align with ratios Signup and view all the answers

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

Shareholders can claim residual assets only if articles of association allow it Signup and view all the answers

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

Entitlement to residual assets in the articles of association Signup and view all the answers

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

To verify compliance with Islamic principles in transactions Signup and view all the answers

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

Asset-backed financial products Signup and view all the answers

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

In 1999 for the Dow Jones Islamic Market Index Signup and view all the answers

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

To provide halal income options for Muslims Signup and view all the answers

What is a significant characteristic of the FTSE Islamic Index?

Low-debt, non-financial social ethical components Signup and view all the answers

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

To allow asset-backed sales in compliance with Islamic principles Signup and view all the answers

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

Shares are solely personal rights and not asset-backed. Signup and view all the answers

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

To decrease information asymmetry and reduce gharar in the deal. Signup and view all the answers

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

By informing buyers that their ownership is limited to a bundle of rights. Signup and view all the answers

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

By monitoring and advising investment in a volatile market. Signup and view all the answers

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

Converting 'urf into shari’ah conditions for every share transaction. Signup and view all the answers

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

To remove companies with high debt Signup and view all the answers

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

To ensure compliance and proper assessment Signup and view all the answers

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

To establish a sensible analysis 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?

Strengthens the asset-backed position of shares 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?

Further debate on the dependence of Islamic finance over secular law 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?

Illiquid assets should be a considerable proportion in a combination with liquid assets Signup and view all the answers

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

To avoid the riba aspect and ensure transactions are permissible 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?

To prevent transactions from falling into riba category 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?

To ensure compliance with Shariah principles 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?

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

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

Shift from ownership to liability Signup and view all the answers

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

Consequential impact on Islamic law Signup and view all the answers

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

To protect investors and ensure compliance with Islamic principles 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?

Meeting certain conditions Signup and view all the answers

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

Development of Islamic indices Signup and view all the answers

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

Permissibility of shares in Islamic context Signup and view all the answers

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

Islamic Securities House within secular stock exchanges Signup and view all the answers

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

To understand the impact on Islamic law Signup and view all the answers

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

To ensure compliance with ethical standards Signup and view all the answers

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