A more recent development in the Islamic finance industry is in the area of Islamic derivative products.
Question:
A more recent development in the Islamic finance industry is in the area of Islamic derivative products. Despite the potential, there are of course controversies when Shari'ah compliant versions of derivatives are developed.
a. The Islamic alternative of interest rate swaps are profit rate swaps, which Islamic financial institutions use in order to mitigate the various types of risk that they face. Explain the difference between interest rate swaps and profit rate swaps. Illustrate how an Islamic profit rate swap works by explaining using your own simple words the stages that occurs through an example. (12.5 marks)
b. What is the alternative of conventional call options and put options in the Islamic finance industry, explain why it is needed in the Islamic finance industry, and provide an explanation on how it works through an example. (12.5 marks)
This subject is Islamic investment banking