Islamic Money Market

The money market can be described as the financial market for transactions in wholesale short-term funds. For further details see: ISRA, Islamic Financial System; Principles and Operations.

Framework


Money Market Instruments

Treasury bills are short-term government securities traded on a yield basis; they represent the short-term debt obligations of a national government. For further details see: ISRA, Islamic Financial System; Principles and Operations.

Repurchase Agreements (REPOs) are not a typical instrument but rather a widely used transaction in the money markets. Generally, REPOs represent bilateral transactions encompassing the purchase and resale of securities by agreement; arranged by selling
securities to an investor with an agreement to purchase them back from the investor at a fixed price on a fixed date. For further details see: ISRA, Islamic Financial System; Principles and Operations.

The Negotiable Certificate of Deposit (CD) is created from a bank deposit and represents a bank-issued security that documents a deposit and specifies the interest rate and maturity date. The purpose of creating this instrument is to enable these deposits to trade on the secondary market. Due to the specified maturity, a CD is a term security. The CD is a bearer instrument which implies that whoever holds the instrument at maturity receives the principal and interest. For further details see: ISRA, Islamic Financial System; Principles and Operations.

Commercial paper securities are short-term, unsecured (promissory notes) debt instruments issued by corporations that mature in no longer than 270 days. As this instrument is unsecured, it is usually issued by companies with a good credit rating. Yields on commercial papers are typically higher than government securities of similar maturities, reflecting the risk spread. Like treasury bills, most commercial papers are issued on a discount basis. For further details see: ISRA, Islamic Financial System; Principles and Operations.

Banker’s acceptances (BAs) are short-term, zero coupon debt papers issued by companies. They are guaranteed by a bank and are therefore known as BAs. The bank guarantee enhances credit rating and makes them transferable, therefore they are suitable for secondary market trading. For further details see: ISRA, Islamic Financial System; Principles and Operations.


Bai' 'Inah Transactions In The Money Market
Hibah In Inter-Bank Mudharabah Investment Contract

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