CME-1 Islamic Finance & CMA Regulations 2

Question 1

What is 'gharar' and why is it prohibited in Islamic finance?

Accepted Answer

Excessive uncertainty or ambiguity in a contract's terms that could lead to dispute, prohibited as it is unjust

Answer

Gharar refers to contracts with excessive ambiguity, uncertainty, or speculative elements in key terms (price, subject matter, timing), making them potentially unjust or exploitative.

Question 2

What is 'maysir' and how does it relate to Islamic capital market regulations?

Accepted Answer

Gambling or speculative activity, prohibited under Islamic law; regulators apply this to exclude highly speculative derivative structures

Answer

Maysir refers to gambling or pure speculation where one party gains at another's expense without legitimate economic activity, which Islamic finance principles prohibit.

Question 3

What role does AAOIFI play in Islamic capital markets?

Accepted Answer

Sets Shariah and accounting standards for Islamic financial institutions adopted widely including in Saudi Arabia

Answer

AAOIFI (Accounting and Auditing Organisation for Islamic Financial Institutions) issues internationally recognised Shariah standards, accounting standards, and governance standards for Islamic finance.

Question 4

What is a 'takaful' product in Islamic finance?

Accepted Answer

An Islamic cooperative insurance model based on mutual contribution and solidarity rather than conventional risk transfer

Answer

Takaful is an Islamic insurance model where participants contribute to a mutual fund; claims are paid from the fund and any surplus may be returned to participants, avoiding conventional insurance's riba and gharar.

Question 5

How does a 'diminishing musharaka' work in property financing?

Accepted Answer

The bank and customer co-own the property; the customer gradually buys out the bank's share while paying rent on the bank's portion

Answer

In diminishing musharaka, the bank and customer jointly own an asset; over time the customer purchases the bank's share in installments, and rent on the bank's remaining share decreases accordingly.

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CME-1 Islamic Finance & CMA Regulations 2