Course Details
Course Outline
5 days course
The Nature of Money & Implication on Treasury
- The rules of Sarf and contract
- Riba Al-Nasiah
- Discussion: identifying assets that may be traded or
- pledged from a Sharia’a perspective
- Overview of traditional Money Market activities:
- Deposit & Interbank transactions
- Tradable Instruments
- Repo
Key Islamic Depository Tools
- Summary rules for non-remunerative deposits:
- Qard/Wadiah deposits
- Summary rules for remunerative deposits:
- Mudarabah deposits
- Wakalah deposits
- Murabaha deposits
- Traditional Intrabank Relationship: Fund Transfer Pricing
- (FTP), Inter branch Pricing (IBP) etc
Main Islamic Interbank Tool
● Murabaha vs. Tawarruq vs. Reverse Murabaha - is there any difference?
● Shari'a concerned about this tool
● Brokers, OTC and live warrants
● Breakage, Back value and compounding
● Suq al Sila - Murabaha and Tawarruq in Malaysia
● Standardized documents: IIFM, AIBIM
● Leakage of Islamic funds - what is this? How do different markets deal with this?
Other Islamic Interbank Tool
● Wakalah to do Murabaha vs. Investment Wakalah - what’s the difference?
● Case study: Investment Dar vs. Blom Interbank Wakalah
● Interbank Mudarabah
● Wadiah for hibah & Wadiah for points
Tradable Instruments
- A brief review of traditional tradable tools:
- Certificate of Deposits
- Government Securities (T-Bills etc)
- Banker’s Acceptance
- Commercial Papers
- Quotation basis: yield vs. discount
- Does the Islamic market have alternatives for all the tools above?
Introduction to Sukuk - alternative Islamic tradable instruments
- Short term, high grade issuance for Basel III:
- Central Bank of Bahrain Salam Sukuk
- Short term Sukuk Ijarah
- Are these instruments freely tradable in the secondary
- market?
- Longer-Term Sukuk
- Common structures: Ijarah, Istithmar
- Asset-based vs. Asset-backed Sukuk
- Tradability - Shari'a guideline
- Tenure: Malaysia vs. Global
- Pricing: Fixed-rate vs. Floating Rate Sukuk
Repo
- Understanding a conventional repo
- Why are Repos not widely used in the Islamic market?
- How could an Islamic repo work?
- The IIFM solution
- Alternative solutions
Managing FX Risk
● Shari'a compliant forward alternatives:
» Promise based solutions - unilateral promise, two
unilateral promises vs. bilateral promises
» Promise to deposit i.e. Cross Currency Deposit
» Are these solutions on the balance sheet or off-balance
sheet?
» Exiting these forward?
● How do Islamic banks hedge themselves?
» Long Murabaha
» Back to back promise
Group Exercise: Examine a traditional FX Swap & construct a
Sharia’a compliant FX Swap
Managing FX Risk II
● Sharia’a tools that provide options:
» Arbun
» Promises
» Juala
● How do we use the above to structure Shari'a compliant
currency options?
» Arbun - is the arbun for currency?
» Promises - how do we structure the option premium?
» Which solution is widely used?
● Calculating effective and break-even strike rate
● Are the options tradable?
Group Exercises:
1. How to use Tawarruq for Currency Option?
2. Are the following FX Risk Management Strategies
replicable in the Islamic market?
i. Put Option
ii. Put Spread
Managing Rate Risk
● Shari'a analysis of the following traditional tools for interest
rate risk management
» Forward Rate Agreement (FRA)
» Interest Rate Futures
» Swaps - Interest Rate Swap (IRS) and Cross Currency
Swap (CCS)
» Interest Rate Options
Group Discussion: Are the following Interest Rate Option
Strategies replicable in the Islamic market?
i. Interest Rate Cap
ii. Interest Rate Floor
iii. Interest Rate Collar
