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Intermediate Islamic Finance

Intermediate Islamic Finance

Nabil Maghrebi, Abbas Mirakhor, Zamir Iqbal

ISBN: 978-1-118-99076-6

Jan 2016

352 pages



Explore Islamic finance at a deeper level

Intermediate Islamic Finance: Theory and Practice fills the gap for students and professionals who are already familiar with the fundamentals of Islamic finance, but would like to gain an enhanced understanding of Islamic finance theories and practices. This comprehensive text provides you with coverage of global developments and describes the role of Islamic finance within the global finance community to guide you in your understanding of this important aspect of the international financial landscape. The book references advance concepts and specific problems in the practice of Islamic finance, provides suggested further readings for each chapter, offers details of advanced analysis, and presents key data in visual form via graphs, figures, and tables.

Profound changes have taken place in the financial landscape over the past few decades, including major innovations in financial instruments and substantial changes in regulation. With global financial markets becoming increasingly important players in the industry, it is critical that today's financial professionals understand the essence and implications of key Islamic finance theories and practices.

  • Build upon your fundamental understanding of Islamic finance
  • Explore some areas of convergence and conflict between Islamic finance and conventional finance
  • Strengthen the harmony between Islamic and conventional finance theories and their applications
  • Prepare for a well-rounded career in finance by better understanding how Islamic finance principles apply

Intermediate Islamic Finance: Theory and Practice is an essential text for graduate and post-graduate finance students, economists, researchers, bankers, financial regulators, policymakers, and members of the business community who want to develop a deeper understanding of Islamic finance theories and practices.

Preface xi

About the Authors xix

CHAPTER 1 Epistemology of Finance 1

Epistemology of an Ideal Conventional Financial System 3

Epistemology of an Ideal Islamic Financial System 17

Risk-Sharing Finance in a World of Uncertainty 27

Summary and Conclusions 41

CHAPTER 2 Finance and Ethics 47

Renewed Interest in Ethical Finance 48

Embedded Ethical Issues in Financial Theory 50

Cases of Ethical Issues in Finance 51

Virtue Ethics Model 55

Islamic Framework of Business Ethics 58

Summary and Conclusions 69

CHAPTER 3 The Analytics of Finance 71

The Theory of Interest 73

The Concept of Time Value 76

Utility Theory, Risk Aversion, and Risk Premium 87

The Individual’s Optimal Consumption and Portfolio Choices 95

Market Efficiency and the Random-Walk Hypothesis 105

Risk Sharing in Finance 108

Summary and Conclusions 111

CHAPTER 4 Equity, Efficiency, and Firm Behavior 113

Methodological Issues in Islamic Economics 114

Theories of Firm Behavior in Islamic Economics 116

The Profit-Sharing Principle 122

A Theoretical Construct of Equity and Allocative Efficiency 125

Summary and Conclusions 126

CHAPTER 5 Asset Pricing and Corporate Finance 129

Capital Asset Pricing Model 130

Arbitrage Pricing Theory 151

Capital Structure Theory 155

Summary and Conclusions 167

CHAPTER 6 Scope of Financial Engineering and Derivatives 171

Risk Hedging with Forward and Futures Contracts 173

Properties of Options Contracts 188

Option Valuation Theory 200

Applications of Option Pricing Theory in Islamic Finance 210

Risk Hedging and the Scope of Financial Engineering in Islamic Finance 216

Summary and Conclusions 220

CHAPTER 7 Financing Models and Ownership Transfer 223

Structure and Dynamics of Outstanding Balances 225

Ownership Transfer 237

Hybrid Financing Models Based on Risk Sharing 241

Summary and Conclusions 255

CHAPTER 8 Securitization and Structured Finance 257

Risk Transfer with Credit-Default Swaps 258

The Mechanics of Securitization and Structured Finance 264

Complexity of Contract Structures 268

Securitization, Structured Finance, and Completeness of Contracts 273

Securitization, Risk Transfer with Wa’ad Structures, and Options Strategies 276

Summary and Conclusions 288

CHAPTER 9 Financial Stability 291

The Financial System and the Real Economy 292

Financial Crises and Debt Financing 299

Stability of the Islamic Financial System 305

Summary and Conclusions 313

CHAPTER 10 Financial Regulation 315

The Economics of Financial Regulation 316

The Complexity of Financial Regulation 323

The Regulatory Framework under Islamic Finance 329

The Regulatory Challenges in Islamic Finance 336

Summary and Conclusions 340

Appendix A 343

Appendix B 347

References 349

Index 375