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Use of derivatives as hedging instruments in Islamic finance

Posted on 15 January 2013

Given the increasing importance of Islamic banking and finance in Pakistan, it is important to deepen the Islamic financial market in the country. One way of doing so is by developing a market for Islamic hedging instruments, which are known as derivative contracts in conventional finance. It is, however, important to understand the difference between Islamic derivatives and their conventional counterparts.
Financial engineering in Islamic banking and finance has resulted in a number of Islamic options, forward and futures contracts that may be used for risk management and hedging. It must, however, be emphasised that trading in options (rights to buy and sell), forwards and futures contracts is not permissible under Shariah. The use of such contracts is permissible solely for hedging purposes, and not for pure speculative reasons………………………………………..Full Article: Source

 
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Laxman - who has written 19160 posts on Opalesque Islamic Finance Briefing.


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