The main objective of this paper is to review the use and status of derivatives in Islamic finance. This is done by first explaining the basic derivative contracts of forwards, futures, options and swaps. Thereafter, the discussion turns to the use of derivatives with sukuk. The paper then explores the debate between scholars on the admissibility or otherwise of forwards, futures and options in Islamic finance. It then examines contracts in Islamic finance that have derivative-like features and which can be used for the same purposes of hedging as forwards, futures, options and swaps. It concludes by highlighting areas for future research.
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