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The Binding Nature of Promises in Murabahah Financing

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The Binding Nature of Promises in Murabahah Financing

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Questions and Answers

Which concept can reduce the effect of moral hazard and adverse selection?

Use of current accounts

Optimizing credit portfolios

Incentive compatible contracts (correct)

Shocks on the assets side

What do banks specialize in optimizing?

Credit portfolios (correct)

Current accounts on the liability side

Moral hazard and adverse selection

Credit and equity portfolios

What is the risk of Musharakah - Mudarabah (M-M) financing?

Systemic instability (correct)

Shocks on the assets side

Incentive compatible contracts

Optimizing credit portfolios

Why can't shocks on the assets side be absorbed by current accounts on the liability side?

High utilization of current accounts (A) Signup and view all the answers

What is the main concern about the greater use of M-M on the asset side?

Systemic instability (A) Signup and view all the answers

What do Islamic banks primarily use on the liability side?

Current accounts (A) Signup and view all the answers

What is the argument against the use of incentive compatible contracts?

Specialization of banks (A) Signup and view all the answers

What can reduce the effect of moral hazard and adverse selection?

Incentive compatible contracts (B) Signup and view all the answers

What is the main concern about the shocks on the assets side?

Systemic instability (C) Signup and view all the answers

What is the potential consequence of greater use of M-M on the asset side?

Systemic instability (D) Signup and view all the answers