Foreign currency exchange (forex) is an important segment of international business activities. The trading of the global forex market is reported to be at an average of US$5.3 trillion per day in April 2013. According to the Bank for International Settlement 2013 Triennal Central Bank Survey, the turnover was driven primarily by financial institutions.
Being part of the financial system, most Islamic financial institutions (IFIs) are actively involved in Islamic forex (FX-i) spot trading. The operation and process of the FX-i spot trading in an IFI is, however, largely the same as being practised by conventional financial institutions.
Normally, financial institutions, including IFIs, do not stock a large amount of foreign currencies prior to selling them to their customers or counterparties. The FX-i spot trading involves a large transaction amount. An IFI will first sell the currency to its customers and after the sale is complete, the IFI will purchase the currency from an interbank party. The amount purchased from the interbank party will then be credited into the customers’ account after two working days (T+2). The common understanding adopted by many scholars as well as Shariah advisory boards is that this flow of transactions raises two main Shariah issues, on which this article will shed light.
ISRA THOMSON REUTERS ISLAMIC COMMERCIAL LAW REPORT 2016 (Pg 100 - 103)
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