Asb-4424 Islamic Banking: Common Financial Assessment Answers
Answer:
Discussion
Islamic central banks are different from other central banks as conducting monetary polices is restricted to interest free monetary instruments. The Islamic central bank and the banking sector operate in compliance with Sharia laws (Islamic laws). The Islamic laws prohibits usury and investment on businesses considered contrary to the Islamic teachings (Hanif, 2014). The objectives of Islamic monetary policies are to stabilize the value of money, distribute justice, and enhance economic well being.
The Islamic financial instruments include; profit and loss sharing (mudarabah and Musharakah), financial certificates (sukuk) and mark up contracts (Murabahah and Ijarah) (Hanif, 2014). The profit and loss sharing contract involve sharing of ownership agreement between parties. The Mark Up contracts enables individuals’ access credit and short to medium term financing. The other financial instrument is sukuk that is a certificate representing equal value of all assets that an individual owns.
The payment and settlement policies in Islamic financial markets are; the RTGS system used to settle customers and interbank payment in real time, BCTS used to clear cheques that are based on electronic information and images, BENEFIT used to provide retail payment and EFTS which enable instant low value payment for bank customers (Daly, and Frikha, 2017).
The Islamic central banks use Treasury bill, balance of payment surplus and bank deposit interest rates monetary policies to control inflation and manage currency and demand in the economy (Abedifar et al., 2014). The monetary policies regulate the money markets and ensure stability of value of money and economic well being in the economy. The monetary policy instruments used include; statutory reserve requirement, target growth in money supply, credit ceiling etc.
References
Abedifar, P., Ebrahim, S.M., Molyneux, P. and Tarazi, A., 2015. Islamic banking and finance: recent empirical literature and directions for future research. Journal of Economic Surveys, 29(4), pp.637-670.
Daly, S. and Frikha, M., 2017. Determinants of bank Performance: Comparative Study Between Conventional and Islamic Banking in Bahrain. Journal of the Knowledge Economy, 8(2), pp.471-488.
Hanif, M., 2014. Differences and similarities in Islamic and conventional banking.
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