ANSWER IN ONE OR TWO LINES: SECTION 7 Q1.

. Does prohibition of interest allows Islamic banks to reschedule their debts ? ANS 1: The prohibition of interest does not allow Islamic banks to reschedule debts on the basis of a re-negotiated higher mark-up rate. Q2. Name a few interest free instruments of monetary policy. ANS 2: Interest free Instruments of monetary policy are Legal reserve ratio, credit ceiling, issue of directives and moral suasion. Q3. What is the BRIC road? ANS 3: Brazil, Russia, India & China (BRIC) comprises of world half population and land. Their economies are providing shariah compliant investment opportunities to Islamic investors with lucrative returns. Q4.Is it permitted in shariah to increase price in deferred payment, if yes, when and how? ANS 4: It is permitted in Shariah to increase the price in deferred paymentin accordance to the length of the term of debt arising from such sale. Q5. What are Dynamic risks? ANS 5: Dynamic risks are those resulting from changes in the economy such as changes in the price level, consumer tastes, income and output and technology advancement. SECTION 8 Q1. What does a Salam contract show clearly? ANS 1: Salam contract shows very clearly that Shariah does recognize the time value of Money. Q2. What is fiduciary risk? How is it caused? ANS 2: Fiduciary risk can be caused by the breach of the contract by Islamc banks. The bank may not be fully able to comply with the shariah requirement & there may be some breach of contract by bank with the depositors. Q3. What is diminishing Musharika? How does it operate? ANS 3: Diminishing Musharakah is a special form of Musharakah which ultimately culminates in the ownership of the asset or the project by the client. The bank participates as a financial partner, in full or in part, in a project with a given income forecast. An agreement is signed by the partner and the bank through which the bank receives a share of the profits as a partner.

Q4. Name at least one trend likely to impact shariah compliant Private equity in next 5 years? ANS 4: The growth of Islamic Private Equity comes at a time when there is a controversy over the credibility of the conventional financial system. Islamic Private Equity is the purest form of Shari'ahcompliant financing since it is structured on a partnership basis. We will continue to see an increased focus on the value and potential contribution of Islamic Private Equity as new markets emerge Q5. Name the three categories of the rights Takaful holders enjoy. ANS 5: The three categories of the rights Takaful holders enjoy are : 1. Membership rights 2. Contractual rights. 3. Governance rights.

SECTION 9 Q1. Securities and guarantees are introduced in the contracts against .. Complete the statement. ANS 1: Securities and guarantees are introduced in the contracts against goods (value of goods) but not money. Q2. Briefly name the problems faced by the Islamic banks. ANS 2: 1. Lack of project monitoring. 2. Defaulters and the issue of penalties. 3. Illiquidity of Islamic financial market. 4. Short term asset structure. 5. Short term placement of funds. 6. Lack of a lender of last resort. 7. Taxation problems. Q3. How is private equity defined? ANS 3: It is medium to long term finance provided in return for an equity stake in potentially high growth unquoted companies. For Islamic PE the business should be in accordance with the shariah law. Q4. Name a few international institutions that underpin Islamic finance. ANS 4: International Development Bank (IDB), Jeddah; AAOIFI, Malaysia; IIBR Shariah committee ; AIBI, Malaysia, Bank Negara Malaysia ; Bahrain Monetary Agency, Bahrain are some of the international institutions that underpic Islamic finance.

Q5. Name the instruments of conventional monetary policy suitable of Islamic Economy. ANS 5: Interest free Instruments of monetary policy are Legal reserve ratio, credit ceiling, issue of directives and moral suasion are suitable for Islamic economy. SECTION 10 Q1. When does zakah become obligatory? ANS 1: Zakah becomes obligatory when an individual freely owns and possesses a productive nisab (minimum) of property. Q2. When is a contract termed Sahih? ANS 2: A contract is sahih when it is valid, effective and enforceable. Q3. Define Operational risk? ANS 3: It is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems. Q4. What is insurable risk.Define ANS 4: Eventuality for loss or damage that is definable, similar to a large number of known exposures, and pays a premium that is commensurate with the potential loss is an insurable risk. Q5. Bank Islam card (BIC) works off three shariah contracts. What are they? ANS 5: BIC works on Bai Inah, Wadiah & Qard Hasan sharia contracts.

SECTION 11 FILL UP THE BLANKS: ANSWERS: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Istisnaa. Promise to buy Ujrah. Delivery risk. Commercial or Cooperative. Maturity of Credit facility. Micro and Macro. Corrupt (Fasid). Usury. Daily, Weekly, Monthly or Quarterly. LIBOR.

13. Sharikah. 14. 15. Default risk. SECTION 12 MATCH THE FOLLOWING ANSWERS: Mudarabah Consensus of Islamic scholars Letter of Credit L/C Takaful Deferred sale Down payment J M Keynes Bai al Eina Kafala Qirad SECTION 13 TRUE OR FALSE: ANSWERS: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. False. True. False. False. True. True. True. False. True. False. True. True. False. True. False. Principal Agent contract Ijma An interesting application of Murabaha Mutual Assistance/Taawun Bai al Muajjal Bai al Arbun Famous General theory Same Item sale repurchase contract of guarantee Also known as Muqarada or Mudaraba