Commercial banks are the backbone of any economy and they contribute to the economic development in the following ways: 1) Promoting capital formation in the economy 2) Promotion of trade and industry through loans and investments 3) Development of agriculture through Agri-financing 4) Transferring surplus capital from developed to less developed regions to allow for balanced development of the economy 5) Encouraging businesses related to export by providing them support so as to improve the GDP of the country through positive trade (Janan, 2009) b.1. Following are the 5 principles on which the Islamic banking model operates: 1) Sanctity of contract – it must be ensured that the contract is halal (all components valid and not voidable) according to the Sharia rulings 2) Risk Sharing – profit must not be earned by a party without having a stake in the asset generating the said profit 3) No Riba/Interest – money should not be lent to earn additional amount on its underlying value 4) Economic Purpose – the activity should be for economic purpose 5) Fairness – the terms and conditions should be fair to all parties involved and be disclosed full to avoid any doubt in the contract (Ahmad & Shabbir) b.2. Advantages of Islamic Banking over Conventional Banking: 1) Islamic modes of finance can’t be marketed beyond the initial parties of the contract and are also non-callable – both these features protect the financial system from collapsing. Conventional bank lending is a pyramid shaped chain where one party can further the loan attained from the bank, thus when a financial crisis occurs and one party defaults the whole system crashes. Also the non-callable feature allows for more certainty as the party is able to keep the loan until its maturity. (Ahmad & Shabbir) 2) Islamic banks bear the liability of getting involved in a transaction with the customer unlike conventional banks – thus they do not have a guaranteed return in form of fixed payments from customers (interest) rather they take risk of partnering in a venture with their client. For example in Musharika which is a mode of Islamic finance, the bank gets into a partnership agreement with the client and the profit sharing ratio is agreed upon by the parties while the ratio of loss sharing is in proportion to the capital invested by the bank and the client. (Ahmad & Shabbir) 3) Credit worthiness of the client is not the only determining factor in Islamic finance – the type, nature, viability and profitability of the business are the main determining factors. Islam does not allow unethical and immoral business activities, thus lending for businesses such as alcohol, pornography, etc. is forbidden as these activities are also harmful and negatively affect the productivity of the economy. (Ahamed, 2008) Q.2 a) The loanable funds market is a driving force of any economy in today’s world as it determines the supply and demand of loans for investment in the economy which in turns determines the gross domestic product and the subsequent economic growth and wellbeing. The supply of loanable
Financial System [University] [Instructor Name] Table of Contents Table of Contents 2 Q.1 3 Q.2 5 Q: 3: Market Risk: 8 Fundamental Concepts 8 Risk management strategy 9 Risk management policies 9 Risk management procedures 9 Risk measurement, monitoring and control 9 Credit Risk 10 Fundamental Concepts 10 Risk management strategy, policies & procedures 10 Risk measurement, monitoring and control 10 Conclusion: 14 Works Cited 14 Q.1 a.1…
These changes frequently affect securities unequally and can be minimized through diversification or hedging. Diversification can be done by venturing into fixed income securities with different periods while hedging is done through the swap of interest rate.
Risk can be seen as the probability that a chosen action may lead to an undesirable action in the future. Risk involves the uncertainty of the future. In business risk can be said to be the probability that an investments actual return will not be as per the expectations.
Executive Summary. This project is an explorative study of risk management and its mitigation strategy in NCB Jamaica Ltd Kingston. Risk management is an area, which plays a significant role in the banking industry. Any risk that is already identified and is to be mitigated can be considered a strategic risk?
In the United Kingdom, companies are continuing to strengthen sound corporate governance systems, focusing on shareholder and stakeholder relations and accountability, improvements in the performance of the board of directors, auditors and the accounting function, and paying attention to the ways in which their companies are controlled and run (Solomon, 2007).
In fact the Chicken Tax imposed in 1964 by the US paved way for reorienting the strategies of the Japanese car manufacturers like Toyota, Nissan and Honda to set up manufacturing facilities in the US. In a way it was a welcome measure to the US in view of foreign direct investment and consequent employment generation.
With the increasing rapidity of change in the business environment, companies have been compelled to bring changes, especially technological changes that can so often create uncertainties and increases the risks. Egbuji (1999, p.94) defines risk as “a measure of the anticipated difference between expectation and reality”.
All these dynamics will be critically analysed in the subsequent sections of the essay. (Investment Bank Watch, 2008)
For effective credit risk management, banks ought to consider a wide range of issues. Experts within the region's banking industry agree that in order for this to be done, and then there should be sound business processes and robust technology.
By evaluating and sanctioning the proposal by appropriately pricing it, the credit risk management policy has indeed performed only half its job. While the measurement of the various ratios and other financial analyses is done with great accuracy, their interpretation is mostly not done.
San Francisco Earth Quake in 1906 had the most destructive impacts on the economy of country. Most of the houses of San Francisco were destroyed and the risk was beyond the control of the home owners in San Francisco. The risk is beyond the
The risk is beyond the control of the house owner (risk taker) and there would not be any potential benefit to the risk. Similar is the case with whole organization, which is manufacturing concern. If the factory is destroyed due to natural
38 pages (9500 words)Essay
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