CONFIDENTIAL BM/OCT 2007/FIN545

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE : ISLAMIC FINANCE

COURSE CODE : FIN545
EXAMINATION : OCTOBER 2007
TIME : 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of seven (7) Questions.

2. Answer only five (5) questions in the Answer Booklet. Start each answer on a new page.

3. Do not bring any material into the examination room unless permission is given by the
invigilator.

4. Please check to make sure that this examination pack consists of:

i) the Question Paper

ii) an Answer Booklet - provided by the Faculty

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 4 printed pages
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CONFIDENTIAL 2 BM/OCT 2007/FIN545

QUESTION 1

a) Today, Islamic finance represents a multi-billion dollar industry which has a presence
in many countries. There are now more than 200 Islamic financial institutions, some
of which are global players, offering an extensive range of Shariah compliant
products and services to a broad spectrum of consumers and businesses that
transcends beyond the Muslim world. Historically, the developments of Islamic
economic, financial and banking system can be divided into three phases; pre-1950,
1960s-1980s and 1990s - present.

Explain the three phases above that contributed to the development of Islamic
economic, financial and banking system in modern history.

(15 marks)

b) An economic system is a collection of institutions set-up by society to deal with

allocation of resources, production and exchange of goods and services, and
distribution of the resulting income and wealth.

Based on the above, briefly explain any two (2) of the following core principles of the
Islamic economic system:

i) Property rights
ii) Contracts
iii) Wealth
(5 marks)

QUESTION 2

a) The concept of riba is not confined to money lending only, but extends to exchange
of goods as well. Explain two (2) forms of riba as recognized by Shariah.
(10 marks)

b) Calculate the total amount of dividend earned by both capital provider (deposit
customer) and entrepreneur (Islamic bank) for the following Mudharabah Investment
Account:
Capital amount: RM100, 000
Period of Investment: 6 month
Agreed pre-determined ratio: 70:30 (customer: bank)
Actual profit rate: 8.0%

(Declared at the end of the investment period)

(10 marks)

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CONFIDENTIAL BM/OCT 2007/FIN545

QUESTION 3

a) You plan to purchase a newly completed apartment for a purchase price of

RM80.000 for a financing period of 20 years. Based on your survey, there are two (2)
Islamic banks offering the financing of the apartment under the contract of Bai'
Bithaman Ajil (BBA) and the details of the alternatives are as follows:

Alternative Monthly Payment

1 period: 1 - 20tn year = RM620
st

• 1 s t year - 5thyear = RM444

» 6th year - 20th year = RM670

Based on your analysis, which alternative is preferred?

(Assume that both banks bear all the fees involved. Support your answer with
relevant calculation)
(10 marks)

b) Explain the two (2) tier Mudharabah Model.

(10 marks)

QUESTION 4

Both Farid and Adi are interested to be involved in business as partners and have agreed to
contribute the capital required of RM6,000 and RM4,000 respectively. Prior to the
establishment of the business, both have, in writing, agreed to the pre-determined profit
sharing ratio that is 30:70 (Farid: Adi).

Based on the above, answer the following:

a) Briefly explain the Shariah contract involved.

(5 marks)

b) Based on answer in (a), briefly explain the features and conditions of the contract.

(5 marks)
c) Illustrate the process flow/modus operandi of the contract.
(5 marks)

d) If the business suffers losses of RM4,000, calculate the total loss amount to be borne
by Farid and Adi.
(5 marks)

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CONFIDENTIAL 4 BM/OCT 2007/FIN545

QUESTION 5

Among the most popular contracts of sale used by Islamic banks for the purchase of
commodities or any other suitable products on credit is Murabahah.

a) Briefly explain the concept of Murabahah used by Islamic banks.

(5 marks)

b) Illustrate the process flow/modus operandi of the contract of Murabahah.

(7 marks)

c) Briefly explain the features and conditions of the contract of Murabahah.

(8 marks)

QUESTION 6

a) Briefly explain what is sukuk.

(5 marks)

b) Sukuk can be created under different types of Shariah contracts. Briefly explain any
two (2) of the following sukuk:

i) Ijarah Sukuk
ii) Salam Sukuk
iii) Musharakah Sukuk
(10 marks)

c) Besides riba, gharar is another prohibited element in financial contracting. Briefly

explain the reasons for the prohibition.
(5 marks)

QUESTION 7

a) For the past few decades, Islamic banking and finance has made significant impact
on various parts of the world including Malaysia. Discuss in detail the historical
development of Islamic banking in Malaysia since 1983 until the present.

(10 marks)
b) Briefly explain the following terminology:

i) Interest-Free Banking Scheme

ii) Islamic subsidiary
iii) Full-fledged Islamic bank
(10 marks)

END OF QUESTION PAPER

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