The following is true about Islamic finance The financing method should be such as to bestow the risk on the lender and not the borrower Interest is payable as long as the risk is borne by the borrower An example of mubarah is when a bank purchases a property, sells to the owner with payments on an installment basis. An example of Ijara is when a bank purchases the property and rents to the borrower without requiring a final purchase price at the end of the contract QUESTION 2 The following is true about a commercial letter of credit (LC), except A bank that issues an LC is responsible for paying the exporter if the importer is unable to pay. The importer's bank first issues the LC to the exporter A LC is an off-balance sheet liability because of the risk that the importer may not be able to pay the bank when payment is due. Once the LC is stamped "accepted" by the issuing bank, it becomes a guarantee of payment by the issuing bank
QUESTION 1
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The following is true about Islamic finance
The financing method should be such as to bestow the risk on the lender and not the borrower
Interest is payable as long as the risk is borne by the borrower
An example of mubarah is when a bank purchases a property, sells to the owner with payments on an installment basis.
An example of Ijara is when a bank purchases the property and rents to the borrower without requiring a final purchase price at the end of the contract
QUESTION 2
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The following is true about a commercial letter of credit (LC), except
A bank that issues an LC is responsible for paying the exporter if the importer is unable to pay.
The importer's bank first issues the LC to the exporter
A LC is an off-balance sheet liability because of the risk that the importer may not be able to pay the bank when payment is due.
Once the LC is stamped "accepted" by the issuing bank, it becomes a guarantee of payment by the issuing bank
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To guarantee the seller that the payment will be made, buyers of large purchases may want a letter of credit. To ensure that the seller will be paid, a bank will issue a letter of credit, thereby accepting liability for the transaction. Before a bank will guarantee a buyer's payment to a seller, the buyer must show the bank that they have adequate assets or a sufficient line of credit to pay.
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