Risk Management and Islamic Forward Contracts
Risk Management and Islamic Forward Contracts
This chapter focuses on risk management and the use of forward contracts in Islamic banks worldwide. It looks at contracts that are currently used in Islamic banks, including bai muajjal and wa’d as well as bai al-sarf for currency exchange. The chapter first examines risk in Islamic finance and explains forward contracts as used in conventional finance. It then discusses the problems with conventional forwards from Sharī’ah’s perspective. It also considers the practice of Islamic derivatives and the need for hedging. It stresses the need for more transparency and clarity regarding the usage of Islamic derivatives.
Keywords: risk management, forward contracts, Islamic banks, bai muajjal, bai al-sarf, currency exchange, finance, Sharī’ah, derivatives, hedging
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