1.0 INTRODUCTION
1.1 Background Study
The Islamic banking and finance sector is a fast growing industry, where it expanding and getting stronger each and every year. According to Tahmoures (2013), there are over 300 Islamic banks and financial organizations successfully running their business from Dubai, Los Angeles, London, Karachi, Jakarta, Cairo, Riyadh and many other cities in the world. The Financial Times estimates the value of the industry in overall are exceeding $1 trillion (Christophe, Rima, Laurent, Financial Times Special Report, 2010). Most of the expansion has been contributed by the issuance of sukuk.
According to Nazri (2012) in his presentation of Islamic Banking Operations and Regulatory Framework Workshop in Sri Lanka, sukuk is defines as certificates that represent the holder’s proportionate ownership in an undivided part of the underlying asset, where the holder assumes all rights and obligations to such assets. Commonly, sukuk is known as ‘Islamic bonds’, but the correct translation of the Arabic word of Sukukis, ‘islamic Investment Certificates’ (Tahmoures, 2013). The term ‘Islamic bond’ is being pointed out as the only difference between sukuk and conventional bond is that the regulation consistent with Islamic principle of financial trading apply to sukuk (Arif and Meysam, 2012).
Conventional bond is a debt obligation issued by corporation or government in order to obtain financial resources (Zhamal, 2010). The issuer is obligated to pay back the bondholder a principal amount plus periodic interest payments or coupons, upon maturity. This conventional bonds are prohibited by Shariah due to the interest bearing loan transaction (Nazri, 2012). Unlike conventional bonds, sukuk are issued accordance to Shariah principle (Fadma and Rachid, 2013).
Despite of the differences between sukuk and conventional bond, Balkish, Azwan and Rabiatul (2012) stated that, both financial instruments have fixed term maturity, bear profit (coupon) and tradable at normal yield price. However, sukuk must be related and attached to specific asset, service, or project for a certain time period.
1.2 Problem Statement
According to Dodik (n.d), there is only 20 total of results from Proquest searching of sukuk. Today, the increasing popularity of Islamic finance and banking product around the world, especially the issuance of sukuk, a great number of research has been attempted to investigate difference, application, and performance as related to sukuk. In the past research made by Fadma and Rachid (2013), they only evaluate the performance of sukuk portfolio in compared to conventional bond portfolio, in the context of Malaysian market. In their study, they are trying to find either the correlation between return of the portfolio of sukuk and bonds exist.
This paper will encourage readers to learn more about Bank of America, the second largest in the world and is the fastest growing business in America, the investments that the bank has to offer is up to standards. Its revenue is one of the highest in the country, the headquarters is in Charlotte, NC, with dates of starting as back as far as the 1900’s. Also, people may not realize that Merrill Lynch is part of Bank of America, the bank is also with the NYSE. The company has expanded and grown over these years, and are still improving their services to continue with the work that is offered for individuals, corporations, international operations as well as the investment managements.
Everyone in the investment world is constantly looking for ways to insulate themselves from the volatility surrounding the markets in terms of strategizing investments and diversification. Most investors look to the markets for common stock options and mutual funds with hesitancy to global volatility facing today’s financial markets. Another investment market option to considered, although not immune to outside volatility, is the bond market. Ross stated the bond market is larger in scope than the stock market (2011). A bond is an investment option wherein the investor loans money to large organizations such as corporations, state and local municipalities, the US government and governments abroad (Parker, 2014). The Securities and Exchange Commission (SEC) classify a bond as a debt instrument. The bond, also known as a debt security, is issued to the public (creditor) who holds the bond until they are repaid by the borrower in interest-only payments over a particular period (Ross, Westerfield and Jordan, 2011). At the end of the bond term and only then is the principal of the loan paid in full as a balloon payment. It is similar to an IOU held by the creditor until the borrower fulfills their pro...
Encouragingly Jordan’s banking sector managed to weather the crisis better than other sector of the economy, and other banking sector in different countries. This was mainly supported by rather conservative policies and tight regulations. For instance banks in this country are pure universal. This implies there is no pure investment bank that relies entirely on investment income, a factor that majo...
The modern Islamic Finance industry is young, its timeline begin only a few decades ago. However, islamic finance is involving rapidly and continues to expend to serve a growing population of muslims as well as conventional.
In 2003, Capital Market Authority (CMA) was established under the Capital Market Law (CML) to act as regulatory supervisor for the capital market. Capital Market Authority regulate and supervise different critical issues such as market conduct, merger and acquisitions, corporate governance, and issuance of financial tools such as mutual funds, IPOs and Sukuks “Islamic bonds”. Thus, the establishment of CMA defined a new stage of financial liberalization in the country. CMA established the legal and regulatory platform to open up the Saudi capital market, support the privatization effort and increase public participation in the market while promoting efficiency and transparency. Furthermore, in March 2007, Tadawul exchange was re-incorporated as joint stock Company with a capital of USD 320 million to increase autonomy for the exchange. After the formation of CMA, the Saudi capital market continuously evolving in term of breadth, depth and complexity. In March 2010, the number of listed companies increased to 139 from 76 back in 2001 as local companies started to look at capital markets to fund their future financing needs. Due to the increasing in investors participation, Tadawul’s total market capitalization at a compound annual growth rate “CAGR” of 34.8% to SAR 1.9 trillion which about USD 507 billion between 2003-2007. Due to the financial crisis in 2008-2009 the market capitalization for Tadawul declined to SAR 1.2 trillion, which about USD 320 billion. Between the years of 2003-2007, the stock market activity grew in a fast pace without interruption in term of value, volume, and market cap along with rising in the number of transactions. The total trading volume of shares on Tadawul Stock Exchange increased at a CAGR of 11.4% between 2003-2009. The
Bonds are publicly traded debt securities whereby companies borrow money from investors and agree to pay a fixed amount of interest periodically and the principal amount at the time of maturity. The attraction to bonds for many investors is that there are considered a “less-risky” investment than stocks. Investors who are risk inverse tend to formulate an investment portfolio that is heavily invested in bonds and other relatively safe assets.
Historically, the Malaysia Government Bond 10Y reached an all time high of 5.35 in April of 2004 and record low of 2.87 in January of 2009. Thus, the bond market in Malaysia are normally fluctuate, the risk taken by the bondholders could be minimized by getting ready homework about the bonds which are going to buy with. Bonds can be a great instrument to generate income and widely considered to be a safe investment, especially compared to equity securities such as stocks. However, However, investors need to be aware of some potential traps and risks to holding corporate and/or government bonds. Let us expose the bonds potential risks. Firstly is the inflation risk. When an investor buys a bond, he or she crucially commits receiving a rate of return, either fixed or flexible, for the period of the bond or at least as long as it is held. But what happens if the cost of living and inflation increase dramatically, and at a quicker rate than income investment? When that happens, investors will see their purchasing power corrode and may actually achieve a negative rate of return (because of factoring in
The research article discusses two approaches, one method is Islamic financing and other is the conventional capital asset pricing model (CAPM). Using the direct Musharakah, Islamic financing method is applied against the conventional financing method by comparing each other. Comparing the two approaches has drawn several findings; it is found that the beta-risk is lower on investments, which are based on the partnership of Islamic financing as compared to the conventional market. The risk is on the share of the lenders and others but not on the risk-return. Equilibrium exists between the relative risk and the share of lender, furthermore, it is also discussed in the article that Islamic financing is not based on the fixed and predetermined rate of interest, prediction of inflation in future and the partnerships, which are based on the minimum risk with maximum return. Islamic financing is spreading with the growth rate of 23% annually and many Islamic financing banks and institutions are working all over the world.
Baitulmal means the Treasury, Baitulmal according to Fiqh is the exchequer of an Islamic state. Being public property, all the citizens of an Islamic state have some beneficial right over the Baitulmal, yet, nobody can claim to be its owner.
The Baitulmal can categories by wealth management. Wealth management is an important aspect in Islam. If we do not know the owner of the wealth, we must manage it in the best way as we can. This is because wealth management is closely related with individual and society welfare. The success economies in Malaysia not just arise on how income and expenditure level, but also relies on how wealth or properties manage. That’s why the wealth management must to do the best way.
(a) Bonds are considered as debt instrument or interest-bearing security in financial market. There are some characteristic of bonds and rules that Lim need to aware before he invests it because all of the factors can determine the value of a bond and the extent to which it fit to the portfolio.
As the world has recently passed through the global financial crisis that begun in 2008 in the USA with the banks’ collapsing, analysts are giving different opinions and making new economic hypothesizes about the origin of, as well as the process of different countries escaped from the crisis. Among all these new “theories”, the case of Islamic banks is interesting in terms of its nature and consequences. In my essay, I will try to highlight the basic principles of the Islamic finance, the reasons of the restriction of interest, the most important tools used by Islamic banks in economic activities and brief explanation of them, and finally my view point of the probable future improvement of the Islamic financial system.
...ctices. Thus, in order to counter this challenges, better awareness should be create among the customers that Islamic banking is not only valid to Muslims only. It can be widely use by other religion.
Bond and stock both belong to negotiable securities, although both have their own characteristics. Bond and stock as a member of the securities system, which is a fictitious capital, they are no actual value, but they are the representatives of the real capital. Holding bond and stock are likely to obtain revenues. Also, bond and stock are the means of financing, compared with indirect financing such as bank loans, issuance of bonds and stock financing are large, long-term, low-cost, and not subject to the conditions of the lending bank. But, the mutual effect of yield from a single bond and stock, their yields are often differences and sometimes there such a big gap. However, if the market is effective, the average interest rate of the bond and the average return rate of the stock will generally remain relatively stable relationship, the difference reflects the degree of risk difference between the two. Looking with dynamic, the rate of return of the stock and prices and bond’s interest rates and prices are affect each other, often in the securities market with the movement in the same direction, for example, when the stock goes up then the bond will be going up too, but not exactly same range. These are the relationship between stock and
Studying Banking and Finance at University of St.Gallen will help me further increase my proficiency of corporate finance and financial markets. The in-depth research of specific topics, as well as a comprehensive curriculum, is a possibility for me to focus on my topic of interest ...