Chapter – 7

ISLAMIC BONDS
Multiple Choices Questions
are certificates of equal value representing undivided shares in the ____________ .1
ownership of tangible assets, usufructs and services or (in the ownership of) the assets
.of particular projects or special investment activity
a) alternative investments
b) Sukuk
c) Islamic stocks
d) charitable endowments
Diff: 2
Page Ref: 257
LO: 1

2. All the followings are benefits of sukuk EXCEPT:

a) sukuk is among the best ways of financing large enterprises
b) sukuk represent an excellent way of managing liquidity for banks and Islamic
financial institutions
c) sukuk enable investors to deploy small sums of capital without the ability to
liquidate their positions easily whenever the need should arises
d) sukuk are a means for the equitable distribution of wealth
Diff: 2
Page Ref: 259
LO: 1

3. Sukuk have been generally classified as:

a) tradable and non-tradable
b) short term and long term
c) debt based and equity based
d) A and C
Diff: 2
Page Ref: 263 - 264
LO: 2

4. The most common tradeable investment sukuk in use are

a) sukuk al-mudarabah
b) sukuk al-ijarah
c) sukuk al-salam
d) a and b
Diff: 2
Page Ref: 264
LO: 2
5. Trust Investment Bonds are also known as ________________.
a) sukuk al-mudarabah
b) sukuk al-mushrakah
c) sukuk ali-jarah
d) none of the above
Diff: 2
Page Ref: 264
LO: 2

6. The following rules are valid and must be followed when selling mudarabah sukuk
EXCEPT:
a) if the mudarabah capital is in the form of money, the trading of mudarabah
sukuk will be like the exchange of money for money and it must satisfy the rules of
bai‘ al Sarf
b) if the mudarabah capital is in the form of debt, it must be based on the principles
of debt trading in Islamic jurisprudence
c) mudarabah capital cannot be a combination of more than two types of
capital such as cash, receivables, goods, real assets and benefits
d) none of the above
Diff: 3
Page Ref: 266 - 267
LO: 2

7. Musharakah sukuk can be used for the mobilization of funds that can be used:
a) for new project
b) to develop an existing project
c) to finance a huge business activity based on joint venture contracts
d) all of the above
Diff: 2
Page Ref: 268
LO: 2

8. ______________ has been structured in a manner that would allow for the
mobilisation of funds for the development of long term infrastructure projects.
a) the contract of ijarah
b) the contract of musharakah
c) the contract of wakalah
d) the contract of mudarabah
Diff: 2
Page Ref: 270
LO: 2

9. Which of the following is not a form of ijarah sukuk?

a) sukuk of ownership in leased assets
b) sukuk of ownership of usufructs of assets
c) sukuk of ownership of services
d) sukuk of ownership in leased with option to buy assets
 Diff: 3
Page Ref: 272
LO: 2

10. ____________is issued with aim of conferring the right of usufruct in the sukuk
holders where they become joint owners.
a) sukuk of ownership in leased assets
b) sukuk of ownership of usufructs of leased assets
c) sukuk of ownership of usufructs of assets
d) sukuk of ownership of services
Diff: 2
Page Ref: 272
LO: 2

11. This form of ijarah sukuk is issued to subscribers for the purpose of conferring the
ownership in such services to the sukuk holders:
a) sukuk of ownership in leased assets
b) sukuk of ownership of services
c) sukuk of ownership of usufructs of assets
d) none of the above
Diff: 1
Page Ref: 272
LO: 2

12. The following statements regarding the AAOIFI Standards on Islamic Bonds are
true EXCEPT:
a) the standards contain the Sharī‘ah rulings and requirements on the different types
of sukuk as well as the prevailing practices in the secondary markets
b) the scope of the investment sukuk is clearly specified with the enumeration of the
fourteen types of Sukuk structures (Table 7.2 of the textbook)
c) the AAOIFI investment sukuk standards are extended to shares of stock
companies, certificates of funds and investment portfolios
d) the focus of the standards is the Islamic financial institutions or corporate entities
offering Islamic financial services such as sukuk
Diff: 3
Page Ref: 274
LO: 3

13. The following Sharī‘ah requirement(s) must be observed in the process of

issuance of investment sukuk:
a) it is not permissible to issue investment certificates, on the basis of any of
Sharī‘ah-compliant investment contracts
b) it is permissible to issue securities for trading in tangible assets, usufructs, or
services
c) the contract of issue must be governed, after closing date and allocation of the
certificates, by the interpretation of the issuer
d) the two parties of the contract of issue are the issuer and the management
Diff: 3
Page Ref: 275
 LO: 3

14. Which of the following statements regarding rating agencies is/are true?
a) there are over 50 rating agencies that have been established across the world.
b) the leading global rating agencies include Moody's, Standard & Poor's, and Fitch
Rating.
c) the Islamic Development Bank (IDB) took the initiative to establish an
international rating agency known as the Islamic International Rating Agency (IIRA).
d) all of the above
Diff: 3
Page Ref: 279
LO: 4

15. The two popular classifications of bonds while rating their quality are:
a) ‘investment grade bonds’ and ‘junk bonds’.
b) ‘sovereign grade bonds’ and ‘corporate bonds’
c) ‘investment grade bonds’ and ‘sovereign grade bonds’
d) none of the above
Diff: 3
Page Ref: 279
LO: 4

16. Islamic bonds can be rated on two bases:

a) long term and short-term
b) sovereign and corporate
c) public and private
d) none of the above
Diff: 2
Page Ref: 279
LO: 4

17. Which of the following factors is not considered by ‘Euromoney Country Risks’
as essential in the ranking of countries by risk?
a) political risk
b) economic performance/projections
c) structural assessment
d) all of the above
Diff: 2
Page Ref: 281
LO: 4

18. Which of the following factors is considered by ‘Euromoney Country Risks’ as

essential in the ranking of countries by risk?
a) debt indicator and credit ratings
b) access to bank finance
c) access to capital markets
d) all of the above
Diff: 2
Page Ref: 281
 LO: 4

19. The followings are basic categories used by IIRA in analysing sovereign sukuk
and the likelihood of any default on debt obligations at maturity EXCEPT:
a) politics and policy continuity
b) accessibility to capital markets
c) the economy –structure and growth prospects
d) budgetary and fiscal policy
Diff: 3
Page Ref: 281
LO: 4

20. Which of the following categories are used by IIRA in analysing sovereign sukuk
and the likelihood of any default on debt obligations at maturity?
a) monetary policy and flexibility
b) the external accounts
c) internal and external debt
d) all of the above
Diff: 3
Page Ref: 281
LO: 4
21. _______________ promote stability and sustainability in the financial industry.
a) corporate credit ratings
b) sovereign credit ratings
c) country risk ratings
d) credit ratings
Diff: 3
Page Ref: 283
LO: 4

22. In order for corporate entities to win the confidence of prospective investors, they
must:
a) reduce their risk level
b) demonstrate their ability to meet all financial obligations
c) offer their employees generous compensation packages
d) a and b
Diff: 1
Page Ref: 283
LO: 4

23. Corporate ratings in the Islamic financial markets involve:

a) bank’s financial strength ratings
b) Sharī‘ah quality ratings
c) corporate governance ratings
d) all of the above
Diff: 2
Page Ref: 283
LO: 4
24. _________________ comprises issuer and issue ratings where a reliable third
party gives an opinion on the feasibility of the repayment of the issuer or an issue of
its financial obligations within the record time.
a) issuer ratings
b) bond/sukuk ratings
c) sovereign ratings
d) Sharī‘ah quality ratings
Diff: 3
Page Ref: 283
LO: 4

25. The ratings of the issuer of sukuk places particular emphasis on:
a) the level of compliance of certain corporate entities with the requirements of the
Sharī‘ah.
b) the investment quality and/or credit worthiness
c) the issuer continued ability to fulfil its debt obligations to the stakeholders
particularly the investors
d) all of the above
Diff: 3
Page Ref: 284
LO: 4

26. Quantitatively, the strength of the balance sheet of the company and its operating
performance are methodically evaluated when instigating
a) issuer ratings
b) insurer financial strength ratings
c) corporate governance ratings
d) real estate ratings
Diff: 3
Page Ref: 284
LO: 4

:The main issue considered in the banks’ financial strength ratings is the .27
a) investment quality and/or credit worthiness
b) strength of the balance sheet of the bank
c) operating performance of the bank
d) rate of return on investment
Diff: 3
Page Ref: 284 - 285
LO: 4

28. The key subject headings in IIRA’s asset quality analysis are:
a) banking environment
b) risk management practices
c) lending history and performance
d) all of the above
Diff: 2
Page Ref: 285
LO: 4
29. Which of the following sets of fundamentals are considered in the assessment of
the banks’ financial strength?
a) market assessment
b) liquidity and funds management
c) capital adequacy
d) all of the above
Diff: 2
Page Ref: 285
LO: 4

30. Which of the following is not a set of fundamentals that are considered in the
assessment of the banks’ financial strength?
a) liquidity and funds management
b) asset/liability management
c) number of bank outlets
d) adjustments to achieve economic reality
Diff: 2
Page Ref: 285
LO: 4

31. Assessing the level of compliance of a financial institution or corporate entity

with the requirements of the Sharī‘ah include the following major element(s):
a) corporate governance framework
b) code of ethics adopted by the institution
c) monetary policy and flexibility
d) all of the above
Diff: 3
Page Ref: 285
LO: 4

32. Real estate rating is assigned after taking into account:

a) market characteristics
b) effectiveness of the top management team
c) liquidity and funds management
d) all of the above
Diff: 2
Page Ref: 286
LO: 4

33. The real estate rating methodology designed by IIRA evaluates:

a) all on-going projects of the developer
b) the developer’s activities such as the performance of its architects, engineers, and
contractors
c) the level of fairness, transparency, responsibility and accountability of the
developer
d) a and b
Diff: 3
Page Ref: 286
LO: 4