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?

    <p>High utilization of current accounts</p> Signup and view all the answers

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

    <p>Systemic instability</p> Signup and view all the answers

    What do Islamic banks primarily use on the liability side?

    <p>Current accounts</p> Signup and view all the answers

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

    <p>Specialization of banks</p> Signup and view all the answers

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

    <p>Incentive compatible contracts</p> Signup and view all the answers

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

    <p>Systemic instability</p> Signup and view all the answers

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

    <p>Systemic instability</p> Signup and view all the answers

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