ACC1005/PHE2035 Foundations of Finance

Tutorial 10 (Week 13)

A) Read the Chapter “Islamic Finance - A Brief Introduction” and answer

the following questions.

Q1. In which year did Singapore launch the first full-fledged Islamic bank?

A. 2007
B. 2008
C. 2009
D. 2010

Q2. Which of the following is NOT a global center for Islamic finance?

A. London
B. Singapore
C. Dubai
D. Kuala Lumpur

Q3. Which of the following regarding Islamic finance and conventional finance is NOT
true?

A. Islamic finance is a melding and balancing of Islam and conventional finance

concepts.
B. Conventional finance structures are simply reverse engineered to bring them into
compliance with Islamic legal principles.
C. The only difference between Islamic finance and conventional finance is the
prohibition of riba.
D. Islamic finance is some markets are less strict adherence to Islamic principles and
more similarity to conventional finance are often preferred.

1|Page
Q4. Which of the following statements consider Tawarruq are correct?

i. Tawarruq is also known as reverse commodity murabaha

ii. Tawarruq is an effective framework that has developed by Islamic finance to
replicate shorter-term cash loans, such as for financing working capital
iii. Monetization phase in Tawarruq is where the customer can sell the commodities
back to the first broker to cash in the money
iv. Under Tawarruq facility, the financial institution will make a profit on the sale of
the commodities, to be paid instantly by the customer; and the Brokers have each
earned a commission on the sales of the commodities.

A. Only ii
B. Both ii and iii
C. Both iii and iv
D. Both i and ii

Q5. Which Islamic finance facility does the following case describe?

 The client wants to purchase a house for which he does not have adequate funds. He
approaches the financier who agrees to participate with him in purchasing the
required house. 20% of the price is paid by the client and 80% of the price by the
financier. Thus the financier owns 80% of the house while the client owns 20%. After
purchasing the property jointly, the client uses the house for his residential
requirements and pays rent to the financier for using his share in the property. At the
same time the share of the financier is further divided into eight equal units, each unit
representing 10% ownership of the house. The client promises the financier that he
will purchase say one unit every three months. Accordingly, after the first term of
three months he purchases one unit of the share of the financier by paying one-tenth
of the house price. This reduces the share of the financier from 80% to 70%. Hence,
the rent payable to the financier is also reduced to that extent. At the end of the second
term, the client purchases another unit thereby increasing his share in the property to
40% and reducing the share of the financier to 60% and consequentially reducing the
rent to that proportion. This process goes on in the same fashion until, after the end
of two years, the client purchases the whole share of the financier thereby reducing
the share of the financier to zero and increasing his own share to 100%. This
arrangement allows the financier to claim rent according to his proportion of
ownership in the property and, at the same time, allows him periodical return of a part
of his principal through purchases of the units of his share of the property.

A. Ijara wa Iqtina
B. Diminishing Mudaraba
C. Diminishing Musharaka
D. Mudaraba

2|Page
Q6. Sukuk is Arabic name stands for

A. Financial liabilities
B. Financial assets
C. Financial loans
D. Financial certificates

B) Additional Questions

Q7. The growing popularity of Islamic finance has encouraged the study of its finance
structures. You are a novice investor who is interested in what Islamic financial products
can offer you. During your research, you have come across the following statements.
Comment on whether you agree or disagree with each statement and explain why.

a) The only difference between Islamic finance and conventional finance is the
prohibition of riba.

b) During the duration of ijara, the ownership of the leased asset lies in the hand of the
customer who leases the asset.

c) Takaful is a means of providing risk cover against catastrophic loss or damage to life
or property, thus is no different from conventional insurance.

Q8. Explain how you can finance the purchase of your new house under the murabahah
facility with the help of a bank.

Q9. Suppose Nexus bank invested in a grocery store for one month, applying a musharaka
contract. The investment contributions of the bank and the grocery store partner are:

Bank Grocery store

Investment £735,000 £690,000

What is a musharaka contract? If the net profit for the month is £450,000, what is the
profit shared by the grocery store partner?

3|Page