CHAPTER 1 CONCEPT OF SYSTEM

FINANCIAL

SIR- MD. HABIBUR RAHMAN

COURSE CODE- FIN 5502

ISLAMIC FINANCIAL SYSTEM

1ST SEMESTER (SUMMER) BATCH 44D

1. What is Financial System? Ans: Financial system is a set of organized institutional set-up through which surplus units transfer their fund to deficit units. The bulk of savings generated by the household sectors in the economy get transferred to the deficit sectors through the financial system. 2. What is the role of Financial System? Ans: The Financial system helps production, capital accumulation, and growth by Encouraging Savings. Mobilizing them, Allocating them among the alternative uses and users. 3. What is the element of Financial System? Ans: There are mainly three types of Financial System.

Financial System

Financial Institution Bank Non-Bank

Financial instruments

Market

Nationalized Commercial Bank NCB

1. Primary (Direct
2. Secondary Indirect)

Private Commercial Bank PCB L) pcb f Specialized Bank

Investment Intermediaries Contractual Saving Institutions.

1. Money Market Controlled by Central bank) 2. Capital market Security Exchange office

CREATED BY ARIF AMINUN RAHAMAN (ARIAN) ID- M132803

CHAPTER 1 CONCEPT OF SYSTEM

FINANCIAL

SIR- MD. HABIBUR RAHMAN

COURSE CODE- FIN 5502

ISLAMIC FINANCIAL SYSTEM

1ST SEMESTER (SUMMER) BATCH 44D

4. What is Islamic Financial System? Ans- A financial system that based on Islamic principles & values, which eliminates riba & ensure a profit sharing mechanism in the financial system may be called Islamic Financial System. Islamic financial system is a set of rules & laws, collectivity referred to as shariah, governing economic, social, political & cultural aspect of Islamic societies. 5. Describe the principles of Islamic Financial System? AnsThe basic principles of an Islamic Financial System can be summarized as followsa) Prohibition of Interest (Riba): In the Islamic Shariah, riba technically refers to anything, pecuniary or nonpecuniary, in excess of the principal in a loan that must be paid by the borrower to the lender along with the principal as a condition for the loan in its maturity. Islam prohibited that type of unjustifiable increase of capital. b) Risk SharingBecause interest in prohibited, the provider of financial capital & the entrepreneur share business risks in return for shares of the profits. c) Money as Potential CapitalIslam recognizes the time value of money, but only when it acts as capital, not when it is potential capital. d) Prohibition of Speculative BehaviorAn Islamic financial system discourages hoarding & prohibits transactions featuring extreme uncertainties, gambling & risks. e) Sanctity of ContractsIslam upholds contractual obligations & the disclosure of information as a sacred duty. This feature is intended to reduce the risk of asymmetric information & moral hazard. f) Shariah Approved ActivitiesIslam allows only those business activities that do not violate the rules of shariah qualify for investment.

CREATED BY ARIF AMINUN RAHAMAN (ARIAN) ID- M132803

CHAPTER 1 CONCEPT OF SYSTEM

FINANCIAL

SIR- MD. HABIBUR RAHMAN

COURSE CODE- FIN 5502

ISLAMIC FINANCIAL SYSTEM

1ST SEMESTER (SUMMER) BATCH 44D

CREATED BY ARIF AMINUN RAHAMAN (ARIAN) ID- M132803