Post on 06-Apr-2018
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1. JAM MASHANIS BT JAMIRAN 2010757431
2. NORASYIKIN BT MOHD LAZIM 2010595103
3. NUR HAFIZAH BT HUSSIN 2010763431
4. SUHAIDA BT MD BASAR 2010528891
Group: ABM2304B
Lecturer: EN. MUHAMMAD YUSRI BIN YUSOF @ SALLEH
THE MEMBERS:
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ISB 540
MODERN FOREIGN EXCHANGE :
PRACTICALITY AND SHARIAHPERSPECTIVES
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Definition of Modern
FOREX*What is FOREX?
The simultaneous buying of one currency and selling ofanother.
*What is FOREX market?
Conversion of one currency into another currency.
*Primary purpose of FOREX:
To assist international trade and investment, byallowing businesses to convert one currency to anothercurrency.
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History of
FOREX*The foreign exchange market (FX or FOREX)as we know it today originated in 1973.
*The Babylonians are the first use of paperbillsand receipts.
*However, Middle Eastern money changerswere the first currency traders who exchanged
coins from one culture to another.
*During the middle ages, the need for anotherform of currency besides coins emerged asthe method of choice.
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Cont
*These paper bills represented:
Transferable third-party payments of funds.
Making foreign currency exchange trading much
easier for merchants and traders.
Causing these regional economies to expand.
*From the beginning stages of FOREX during the Middle
Ages to World War I (WWI), the FOREX markets wererelatively stable and without much speculative activity.
*After WWI, the FOREX markets became very inconsistentand speculative activity increased tenfold.
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Timeline
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Practicality
FOREX Rates(Malaysia)
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Currency Exchange
CalculationEg:
Mid market rates: 2011-10-11 02:03 UTC
1.00 USD = 3.11151 MYR
US Dollar Malaysian
Ringgit
1 USD = 3.11151 MYR
1 MYR = 0.321388 USD
(Currency Converted Widget, 2011)
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FOREX Currency
Transaction*Operations:
24 hours a day
FOREX market is highly liquidTrading conducted electronically @ phone
*Bank, insurance companies and other large financialinstitution are using FOREX to manage the risk
associated with fluctuation in currency rates.
*Commodity Futures Trading Commission (CFTC) cause
vary of fraudulent websites such as Colfax TradingInternational and TradeForex4You.
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Tools of FX
Hedging
* FX Forward
* FX Swap
* FX Option
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Institution Involve in
FOREX
*Federal Governments and Central Banks
*Financial Institutions and Other Banks
*Moving On Hedgers
*Currency Speculators
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*Play major role in currency exchange:
Making extravagant moves along the FOREX market
hand in hand.
Government representatives meet up with CentralBanks representatives regularly to discuss the money
issues.
After all, these FOREX players are able to manipulateFOREX market in order to meet any kind of economicagenda.
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*What is interbank market?
The market where banks make transactions with oneanother and fix the currency price that FOREX traders seeon their trading platform.
*The transactions these large banks engage in are basedupon
credit relationship.
*Basically, it is safe to say that Banks are like dealers. Currencyexchange were done solely in banks or currency exchange pointsand all of them would have their own special currency rates.
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*A successful businesses with internationaltransactions:
Buy from or sell their product or services to an
international clientDirectly brings us to FOREX market.
*The problem every international business faces is the ambiguityin currency rates.
*Hedging strategies allow you to secure an exchange rate at thetime of the business deal. This eliminated the risk of dealing withforeign currency.
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*What is currency speculation?
Assumption of the risk of loss, in in return for the
uncertain possibility of a reward.
*Speculators take advantage of unpredictable exchange rates.
*The biggest speculators of them all are hedge funds. Hedge funds
use all kind of FOREX strategies to gather large returns just likebetting.
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Shariah Overview
*The basic exchange contract:
Currency exchange on a forwardbasis is
not permissible, that is, when the rights andobligations of both parties relate to a futuredate.
Permissible: On the spot basis.
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The Issue of Riba
Prohibition
*FOREX transaction is not permissible in Islamic Shariah due to the existof Riba.
*Types of Riba:
Riba al-fadl(excess/interest)
Riba al-nasiah(deferred)
-Riba is prohibited by disallowing deferredsettlement.
Riba al-jahiliyya(maturity date)
- Interest will be charge when maturity date is end.
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Al-Hadith
*Holy Prophet (peace be upon him) said,
"Sell gold for gold, silver for silver, wheat
for wheat, barley for barley, date for date,salt for salt, in same quantities on the
spot; and when the commodities aredifferent, sell as it suits you, but on the
spot."
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Cont
Conventional views:
Used to manage/hedge againstrisk of fluctuations in exchange
rates Is a derivative instrumentconducting a sale in the future ata price fixed today
Contract sealed today butsettlement & delivery in the future
Shariah Views:
Problem with FX: parties wish toexchange currency in future but
have already fixed a rate today Contravenes Shariah rules ofbay al-sarf: exchange shouldinvolve transactions on a spotbasis
Differences: