Islamic Finance - Foreign currency exchanges
Financial institutions should generally execute spot transactions for settlements involving foreign exchange transactions. The simultaneous delivery of both currencies to both parties is required. The transaction will be forward or postponed depending on whether one or both of the currencies are deferred, making it incompatible with Shari'ah rules. If this isn't possible, the next best course of action is to adhere to the industry norm, which allows for a little amount of delay in the reconciliation of settlement. The AAOIFI Shari'ah Standard (number 1), "Trading in Currencies," which permits the set-off for various currencies as long as the exchange is based on the going market rate on the day of the set-off, has made this provision. Even though spot and simultaneous delivery of the currencies to each other is required by Shari'ah principles, a small delay of up to three days in the delivery of these two countervalues is permitted based on market experience.
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