The Islamic hedging management: Paving the way for innovation in currency options

Islamic hedging is one of the most important tools for risk management.Currency options contracts are commonly regarded as one of the useful tools of risk management and frequently used to reduce risk associated with the movement in price and currency risk.This article attempts to review the suitabi...

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Main Authors: Nordin, Nadhirah, Hashim, Hydzulkifli
Format: Article
Published: Universiti Utara Malaysia 2014
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Online Access:http://repo.uum.edu.my/15871/
http://ijms.uum.edu.my/index.php/component/jdownloads/download/27-ijms-vol-21-no-1-june-2014/147-the-islamic-hedging-management-paving-the-way-for-innovation-in-currency-options
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Institution: Universiti Utara Malaysia
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spelling my.uum.repo.158712016-04-18T04:11:13Z http://repo.uum.edu.my/15871/ The Islamic hedging management: Paving the way for innovation in currency options Nordin, Nadhirah Hashim, Hydzulkifli BP Islam. Bahaism. Theosophy, etc HB Economic Theory Islamic hedging is one of the most important tools for risk management.Currency options contracts are commonly regarded as one of the useful tools of risk management and frequently used to reduce risk associated with the movement in price and currency risk.This article attempts to review the suitability of the Islamic currency options in one of the Islamic banks in Malaysia as a hedging mechanism and highlights Shariah issues pertaining to the structures.Currency options are prohibited in Islamic finance due to the issue of riba and to the violation of the bay al-sarf rule which requires currency trading to be done on “spot” basis only. Options contract is also rejected by some scholars because of premium payment or chargeable fees to the right. In view of the overwhelming importance of currency risk management in the volatile market, the application of Shariah principles in currency market faces a great challenge to Islamic scholars today. Based on the observation of the bank’s official information disclosed to the public and the interview conducted, the finding of this research indicates that the bank permitted currency options based on the principle of tawwaruq (commodity murabahah) or bay al-inah and wa’ad (unilateral promise) which are strictly used for hedging purposes.Tawwaruq and wa’ad principles have given Islamic financial institutions the opportunity to structure Shariah compliant financial products and meet the objective of increasing trading volume and liquidity in order to reduce transaction cost and risk. Universiti Utara Malaysia 2014-06 Article PeerReviewed Nordin, Nadhirah and Hashim, Hydzulkifli (2014) The Islamic hedging management: Paving the way for innovation in currency options. International Journal of Management Studies (IJMS), 21 (1). ISSN 2232-1608 http://ijms.uum.edu.my/index.php/component/jdownloads/download/27-ijms-vol-21-no-1-june-2014/147-the-islamic-hedging-management-paving-the-way-for-innovation-in-currency-options
institution Universiti Utara Malaysia
building UUM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Utara Malaysia
content_source UUM Institutionali Repository
url_provider http://repo.uum.edu.my/
topic BP Islam. Bahaism. Theosophy, etc
HB Economic Theory
spellingShingle BP Islam. Bahaism. Theosophy, etc
HB Economic Theory
Nordin, Nadhirah
Hashim, Hydzulkifli
The Islamic hedging management: Paving the way for innovation in currency options
description Islamic hedging is one of the most important tools for risk management.Currency options contracts are commonly regarded as one of the useful tools of risk management and frequently used to reduce risk associated with the movement in price and currency risk.This article attempts to review the suitability of the Islamic currency options in one of the Islamic banks in Malaysia as a hedging mechanism and highlights Shariah issues pertaining to the structures.Currency options are prohibited in Islamic finance due to the issue of riba and to the violation of the bay al-sarf rule which requires currency trading to be done on “spot” basis only. Options contract is also rejected by some scholars because of premium payment or chargeable fees to the right. In view of the overwhelming importance of currency risk management in the volatile market, the application of Shariah principles in currency market faces a great challenge to Islamic scholars today. Based on the observation of the bank’s official information disclosed to the public and the interview conducted, the finding of this research indicates that the bank permitted currency options based on the principle of tawwaruq (commodity murabahah) or bay al-inah and wa’ad (unilateral promise) which are strictly used for hedging purposes.Tawwaruq and wa’ad principles have given Islamic financial institutions the opportunity to structure Shariah compliant financial products and meet the objective of increasing trading volume and liquidity in order to reduce transaction cost and risk.
format Article
author Nordin, Nadhirah
Hashim, Hydzulkifli
author_facet Nordin, Nadhirah
Hashim, Hydzulkifli
author_sort Nordin, Nadhirah
title The Islamic hedging management: Paving the way for innovation in currency options
title_short The Islamic hedging management: Paving the way for innovation in currency options
title_full The Islamic hedging management: Paving the way for innovation in currency options
title_fullStr The Islamic hedging management: Paving the way for innovation in currency options
title_full_unstemmed The Islamic hedging management: Paving the way for innovation in currency options
title_sort islamic hedging management: paving the way for innovation in currency options
publisher Universiti Utara Malaysia
publishDate 2014
url http://repo.uum.edu.my/15871/
http://ijms.uum.edu.my/index.php/component/jdownloads/download/27-ijms-vol-21-no-1-june-2014/147-the-islamic-hedging-management-paving-the-way-for-innovation-in-currency-options
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