FIN546 ISLAMIC FINANCE

FINAL ASSESSMENT (SET 1)

ZON TENGAH

MULTIPLE CHOICE QUESTION (60 marks)

1. The dual banking system benefits the banking industry in Malaysia on the followings,
EXCEPT:
A. Leveraging on operating infrastructure of conventional banks
B. Level playing field
C. Maximize regulations of arbitrage
D. Comprehensive components of IFIs important to facilitate an effective intermediation
process

2. The element of maysir is contained in conventional insurance as evidenced in the

followings, EXCEPT:
A. the insured does not get anything from his premiums if the insured event does not
happen at all.
B. the insured has hopes of gain and fear losses
C. when moral hazard occurs
D. the insured pays premium for a very long time without having the opportunity to make
a claim

3. Which of the following aspects of sharing are contained in takaful, an Islamic alternative to
insurance?
A. mutual protection from losses
B. mutual respect and understanding
C. mutual affection
D. mutual fund

4. Which of the followings does not present a feature of takaful, an Islamic alternative to
insurance?

A. The contribution is considered a donation to the members in the takaful scheme.

B. The element of uncertainty is eliminated in the transaction between takaful operator
and participants when the terms in the contribution and compensation are made
clear.
C. The contributed donation is intended to divide losses and spread liability according to
the community pooling system.
D. The participants will cooperate among themselves for their common good and does
not aim at deriving advantage at the cost of another individual.

5. Waqf institution is a _________.

A. What is due to the state treasury

B. Trust or foundation
C. Sadaqah centre for needy
D. Zakah centre

6. Which of the followings refers to an Islamic bank?

A. Full-fledged Islamic bank

B. Islamic subsidiaries
C. Interest-free banking scheme
 D. All the above
7. Which of the followings are TRUE concerning the development of the Islamic interbank
money market (IIMM) in Malaysia?
I. The IIMM solves asset-liability mismatches of Islamic banks.
II. The IIMM is popular with their overnight market.
III. The minimum amount of investment in IIMM’s overnight market is RM50,000.
IV. The IIMM’s name was created as banks are so dependent on the money market.
A. IV only
B. I and III
C. II and IV
D. All the above

8. Merdeka Bank has RM15 million surplus funds and wishes to place out for 30 days.
Mezzanine Bank needs a similar amount of the same tenor. Both banks will then execute
their Commodity Murabahah transactions through the Bursa Suq Al-Sila. A 6 percent per
annum profit margin is determined upfront and is made known to the investing bank.
Calculate the total amount Merdeka Bank will receive at the end of 30 days.
A. RM73,972.60
B. RM51,780.80
C. RM15,051,780.80
D. RM15,073,972.60

9. Which of the followings are TRUE concerning the Islamic interbank money market (IIMM)
in Malaysia?
I. The commodity murabahah liquidity facility uses the tawarruq arrangement.
II. Participants in the trading of Islamic money market instruments constitute both
financial and non-financial institutions.
III. In the Mudarabah interbank investment, losses from the investment is shared equally
between the fund provider and manager of the fund.
IV. The Islamic contracts currently used in the IIMM are mudarabah, murabahah and
wakalah.
A. I and II
B. II and IV
C. I, II and IV
D. I, III and IV

10. The followings relate to the stock screening process undertaken by the Shariah Advisory
Council of the Securities Commission of Malaysia (SAC-SC), EXCEPT:
I. Should weapons and defence become one of the primary business activities of stock
companies, then it will be rejected by Shariah-sensitive investors.
II. The screening process tolerates a certain percentage of income derived from
Shariah non-compliant activities of a mixed-activity company.
III. The SAC-SC Malaysia allows up to 3 percent or less contribution to total revenue of
a mixed-activity company in relation to income derived from Shariah non-compliant
activities.
IV. Should tobacco manufacturing or sale become one of the primary business activities
of stock companies, then it will be rejected by Shariah-sensitive investors.

A. I and II
B. I and III
C. III and IV
D. IV only
11. The followings are true concerning the role of the Shariah Advisory Council of Bank
Negara Malaysia (SAC-BNM), EXCEPT:
A. The SAC-BNM has no attributes of a judicial decision which means only the Court
gives the final judgement.
B. The SAC-BNM remains the central body of reference to ascertain Shariah rulings.
C. Each Islamic financial institution depends on the SAC-BNM for Shariah guidelines
even on matters of their internal operations.
D. The SAC-BNM ascertains Shariah rulings regarding issue(s) forwarded by the Courts
only.

12. The following statements highlighted the rationale for the permissibility of present-day
joint-stock companies in Malaysia, EXCEPT:
I. Shariah authorities accept two concepts of present-day companies – legal entity and
limited liability company.
II. Shariah scholars are aware that shareholders do not have sufficient power to
influence the decisions of the company.
III. Shariah decisions on compliant equities consider current realities of the society and
maslahah of the ummah.
IV. A strict operational definition of what it means to be a halal business will end up with
a very small number of Shariah-compliant stocks.
A. I and II
B. II and III
C. III and IV
D. None of the above

13. Certain businesses are compatible with the Shariah law. Thus, stocks of companies in
the following businesses are not considered suitable for Islamic equity market investing,
EXCEPT:
A. Alcohol
B. Palm oil plantation
C. Pork-related product
D. Entertainment (hotel, casino/gambling, cinema, pornography and music)

14. The followings are NOT the parties involved in Sukuk issuance:
A. The Investor
B. The Regulator
C. The Subscriber
D. None of the above
15. The followings are examples of Shariah-compliant companies as of May 2020, EXCEPT:
A. Nestle (Malaysia) Berhad
B. CAB Cakaran Corporation Berhad
C. Scientex Berhad
D. MISC Berhad

16. The following statements are true concerning sources of funds in Islamic banking
operations, EXCEPT:
I. The mudarabah investment accounts do not guarantee returns of the invested capital
and profits on investments.
II. Financings that are funded by investment funds are covered by banking capital
based
on the capital adequacy requirement of the Basel Accord.
III. Under restricted investment account, the bank has full discretion in investing the
funds deposited by customers.
IV. The commodity murabahah term deposit is a form of fixed deposit that uses the
 contract of tawarruq.
A. III only
B. II and III
C. III and IV
D. None of the above

17. Kassim deposited RM150,000 into a Mudharabah Investment Account for a 9-month
period with one of the Islamic Banks near his neighbourhood. Based on the aqad, both
parties agreed that the profit-sharing ratio is 70:30 (customer:bank). After 9 months, the
Islamic bank declared an actual profit rate of 5% for the account. Based on the
information given, calculate how much is the total profits (in RM) earned by the Islamic
bank:
A. RM 5,625.00
B. RM 1,687.50
C. RM 3,937.50
D. RM 1,678.50

18. The deposits placed in the Islamic current account based on the Qard principle is in the
form of:
A. donations from depositors to the bank
B. authority to the bank to lend monies
C. loans to the Islamic bank
D. money allowed to be invested by the bank

19. The followings are features concerning the Mudarabah General Investment Account
(MGIA), EXCEPT:
A. The customer acts as the Rabbul Maal.
B. Profit is shared between the Islamic bank and account holders.
C. The Mudarib share in the losses, if any.
D. Rabbul Maal is not allowed to be involved in the management of the funds.

20. The following statements are conditions of the wadiah yad amanah and wadiah yad
damanah contracts that structure various deposit products of an Islamic bank EXCEPT:
A. Under wadiah yad damanah, the custodian is entitled to use the wadiah asset for
trading and any other purposes.
B. Under wadiah yad amanah, the custodian is entitled to use the wadiah asset for
trading and any other purposes.
C. Under wadiah yad amanah, the custodian must return the wadiah asset to the
owners at any time upon the request of the depositor.
D. Under wadiah yad damanah, the custodian must return the wadiah asset to the
owners at any time upon the request of the depositor
21. The purpose of introducing the BBA with variable rate by Islamic banks is to:
A. reduce exposure to market risk
B. obtain liquidity for the bank
C. help borrowers in terms of payment
D. increase the operational risk

22. The best statement that describes the distinction between Islamic credit card and
conventional credit card is:
A. Both Islamic and conventional credit card are covered by takaful.
B. Only Islamic credit card offers early repayment rebate.
 C. Islamic credit card has compounding factor, but conventional credit card informs total
liability upfront.
D. Unlike conventional credit card, Islamic credit card does not charge fees.
23. A personal financing product of Islamic bank that applies this principle needs the bank
and customer to sign a sale and buy-back contract.
A. Al-Inah
B. At-Tawarruq
C. Ar-Rahnu
D. As-Salam

24. The Shariah authorities permit investment in the shares of a company. In this relation,
the Shariah permissibility of equity market investment includes the following, EXCEPT:
A. The contract of partnership it is related to is called Sharikah al-Aqd.
B. The capital of sharikah should be contributed in the form of monetary assets.
C. The legal entity and limited liability concepts of the company are recognized.
D. Speculative trading is allowed in the Islamic equity market.

25. The followings are true concerning Home Financing-Parallel Istisna’, EXCEPT:
A. Customer will appoint bank as a contractor to undertake project of building a house.
B. Customer will participate in a contract with the bank at cost plus profit margin.
C. Bank will participate in another contract with a sub-contractor to build the house.
D. The sub-contractor will deliver the completed house to the customer directly.

26. Which of the followings is a complete description of an Islamic bank guarantee, a

product offering of an Islamic bank?
A. A guarantee, which is a promise by a third party to carry out the obligations owed by
one person to another due to a default.
B. Under the Shariah, and in accordance with the principle of kafalah, an Islamic bank
may issue, at the request of a customer, an Islamic bank guarantee (IBG) to a
beneficiary named by the customer.
C. Given by the Islamic bank (guarantor) in writing at the request of the customer
(principal) to pay a stated sum of money to the beneficiary upon presentation of the
written demand.
D. All the above

27. An Islamic letter of credit can be issued under which three Islamic principles that
structure the transaction among the parties involved?

A. Wakalah, Murabahah and Mudarabah.

B. Musharakah, Wakalah and Mudarabah
C. Mudarabah, Kafalah and Musharakah.
D. Wakalah, Murabahah and Musharakah

28. An Islamic accepted bill imports and local purchases is one of the facilities under trade
finance services offered by Islamic banks. Which of the followings is TRUE concerning
the IAB?
A. The Islamic principles applied are Kafalah and Wakalah.
B. The service is needed by the importer/buyer due to the absence of bill of lading/
document of title of goods from the exporter to enable the importer to claim goods at
the port.
C. The sale of goods by an Islamic bank to a customer/ importer on deferred payment
terms thereafter creates a debt which is securitized.
D. It is document of trust signed by an importer, after which the bank allows the importer
to obtain release of the goods but pay the full price at a later date.
29. Which of the followings best describes an Islamic Shipping Guarantee, a product offering
of an Islamic bank?

A. A financing facility to finance domestic or international trade documents drawn

against an Islamic letter of credit
B. Letter of performance and indemnity issued by an Islamic bank on behalf of a buyer
or importer
C. A written undertaking given by an Islamic bank to a seller (or exporter) at the request
and instruction of a buyer (or importer)
D. An interest free bill that encourages domestic and foreign trade of local business
companies
30. Which of the followings is a complete description of an Islamic letter of credit that uses
the musharakah principle?

A. An Islamic bank requires a customer to deposit a certain percentage of money prior

to the importation of goods.
B. The Islamic bank will then issue an ILC and make the payment using both the
customer’s and its own funds.
C. The customer is responsible for selling the goods and returning the bank’s portion of
capital together with a predetermined portion of profit from the sales.
D. All the above

LONG ESSAY QUESTIONS (40 marks)

QUESTION 1

Elaborate four (4) rationale behind the prohibition of riba.

(10 marks)
QUESTION 2

The subject matter or mahal al-‘aqd is one of the important elements under the Islamic law of
contract. Muslim jurists have established several conditions of the subject matter for it to
become valid. Following that, explain four (4) essential conditions of the subject matter that
need to be fulfilled by the respective parties in a contract.
(10 marks)
QUESTION 3

Wira Saksama Berhad is a holding company of several subsidiary companies whose

business activities comprise both permissible and non-permissible transactions. Based on
the following financial data of the company, determine the Shariah non-compliance of Wira
Saksama Berhad in terms of sector screening and financial screening.

Transactions RM million
Group Profit Before Tax 1,500
Takaful insurance business 12
Cinema business 3
Liquor business 5
Cigarette business 23
Textile business 11
Gaming business 4
Advertising business 10
Stockbroking business 170
Weapon business 180
Storage of pork related products 2
Hotel and resort operations 65
Pineapple plantation 90
Deer meat business 15
Fixtures and equipment business 60
Other Income
Interest income from conventional accounts and instruments 25
Rental income from disco, night club business 45
Dividend received from an Islamic business company 15
Balance Sheet Items
Investment account – Mudharabah 90
Contributed capital 100
Subordinated sukuk 150
Cash placed in conventional accounts and instruments 50
Cash placed in Islamic accounts and instruments 60
Income bond 70
Total assets 240

Decide whether Wira Saksama Berhad is a Shariah-compliant company by showing the

calculation of the respective benchmarks under sector screening and financial screening.
(10 marks)

QUESTION 4

Explain four (4) underlying contracts for deposit accounts of an Islamic bank.
(10 marks)