QUESTIONS

The questions below have been provided to help candidates preparing for the Islamic Finance Qualification prepare for their examination. Many of the questions are in the same style as the questions used in the examination and their standard is the same. However some questions have been included which use terms candidates are not expected to know for the examination and others are included to help candidates test their understanding of the study material. As more example questions become available, they will be included on the Candidate CommonRoom. These questions reflect the style and standard of questions in the examination 1. Where a financial institution adopts the windows model, this means that it operates: A. as a totally independent corporate structure. B. conventional banking and Islamic financial services through the same service delivery channels but the operational aspects are segregated between conventional and Islamic banking practices C. a dedicated distribution channel for transacting Islamic financial services. D. Islamic banking solely through its parent company. 2. How will a contract be dealt with under Shariaa if it is found to have a significant element of gharar? The contract: A. must be referred to the Sharia'a Supervisory Board. B. must be amended within a prescribed time limit. C. will be considered invalid. D. will be voidable at the option of either party. 3. Under the Mudaraba contract, who is normally liable for material losses which arise other than through negligence or contractual breach? A. The Rab Al Mal only. B. The Mudarib only. C. Both the Rab Al Mal and the Mudarib in equal shares. D. Both the Rab Al Mal and the Mudarib according to the profit distribution ratio.

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4.

Which one of the following types of contract typically involves collateral being accepted against a debt? A. Kafala. B. Rahn. C. Wakala. D. Hawala.

5.

Under the Two-Tier Mudaraba contract, what does the bank normally do with the money it collects from depositors? A. Invest it with one or more other banks. B. Invest it with another client requiring funds. C. Return it to the depositors on a staggered basis. D. Return it to the depositors as a short-term loan.

6.

X and Y are partners in a Musharaka contract with X contributing capital of $800,000 and Y contributing capital of $200,000. The agreement states that 70% of profits will go to X and 30% to Y. If losses of $50,000 are incurred, how much of this (if any) must be borne by Y? A. None. B. $10,000. C. $15,000. D. $25,000.

7.

Where Arbun is used in a sales contract, what happens to the down payment if the buyer decides not to take the goods by the stipulated time? A. It must be returned in full to the buyer. B. It may be retained in full by the seller. C. It will be split equally between the buyer and the seller. D. It should be forwarded to an independent third party.

8.

Person X wishes to buy an asset from Person Y, with the finance provided by Islamic Bank XYZ under an Ijara wa Iqtina contract. Who will act as lessor under this arrangement? A. Y only. B. XYZ only. C. X and XYZ jointly. D. Y and XYZ jointly.

9.

Under which one of the following types of transaction are letters of credit MOST likely to be used? A. Ijara. B. Salam. C. Parallel Istisna. D. Diminishing Musharaka.

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10.

Where corporate governance for a company operates on a two-tier structure basis, the upper (supervisory) board will normally consist of: A. top management including the Chief Executive Officer, all of whom will have a vote. B. top management including the Chief Executive Officer (CEO), but the CEO will not have a vote. C. non-executive directors plus the Chief Executive Officer, all of whom will have a vote. D. non-executive directors plus the Chief Executive Officer (CEO), but the CEO will not have a vote.

11.

When carrying out an industry screen as part of the Islamic stock selection process, stock for which type of conventional company will be carefully analysed and considered rather than automatically excluded? A. A motor insurer. B. A mortgage lender. C. A small chain of restaurants. D. A medium sized casino.

12.

One of the key differences between a conventional bond and a sakk is that: A. a conventional bond exposes the holder to asset level risks. B. a conventional bond has a fixed maturity date. C. a sakk grants the holder undivided beneficial interest in the underlying asset. D. a sakk will not result in the holder incurring a loss.

13.

Which one of the following types of conventional life policy bears the closest resemblance to a Family Takaful? A. Level term. B. Endowment. C. Whole of life. D. Decreasing term.

14.

One of the main differences between Takaful and proprietary insurance is that any deficiencies in the Takaful fund will normally be addressed by: A. a one-off levy on all policyholders. B. a scaling down of future claims payments. C. an interest-free loan from the Takaful operator. D. an appropriate reduction in the level of Zakat.

15.

After paying back loans and making provision for reserves, what is the MAXIMUM proportion of the remaining underwriting surplus of a Takaful fund which can be re-distributed to policyholders? A. 75%. B. 80%. C. 90%. D. 100%

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16.

The two main contractual parties to a Retakaful arrangement are the Takaful operator and: A. the policyholder. B. the reinsurer. C. Islamic investment bank . D. the Sharia'a Supervisory Board.

17.

A buyer pays a deposit under a Arbun but subsequently declines to proceed with the purchase. What proportion, if any, of the deposit will he be entitled to receive back? A. None. B. One-third. C. One-half. D. All.

18.

A creditor is due to receive repayment of a debt which has been incurred in US dollars. In accordance with AAOIFI rules, he is permitted to accept repayment in an alternative currency but only if: A. the currency used is one in which this person regularly conducts business. B. the spot exchange rate on the settlement day is used. C. the prior approval of a Sharia'a Supervisory Board is obtained. D. the debt is more than 12 months old.

19.

The problems of gharar were avoided during the development of Takaful by applying the principle of: A. Zakat. B. Wujuh. C. Istihsan. D. Tabarru.

20.

The Islamic Financial Services Board is: A. a voluntary organisation headquartered in Dubai. B. a trust established by the Organisation of Islamic Conference. C. a self-regulatory body which includes central banks as members. D. a registered subsidiary of the Financial Services Authority.

21.

A conventional financial institution has decided to offer Islamic Financial services through a dedicated division. This type of operating structure is known as: A. a branches approach. B. a windows model approach. C. a fully fledged approach D. a subsidiaries approach.

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22.

Under an Ijara contract, the lessee is only held liable for damage to the underlying asset if: A. the parties signed a separate warranty on the condition of the asset B. the resulting fall in value of the asset is significant C. he was negligent D. the lease term was open-ended.

23.

In accordance with AAOFI guidelines, it is permitted to hedge against foreign currency exposure by executing back-to-back interest free loans using different currencies without giving or receiving any extra benefit, but only if: A. prior permission is obtained from the Islamic Financial Services Board. B. the two loans are not contractually connected to each other. C. both currencies involved are considered to be mainstream. D. prior permission is obtained from AAOIFFI.

24.

An Islamic investor holds an Amanah current account and has given his bank permission to invest the deposit. The bank would like to invest this money in Salam, Murabaha and Istisna contracts. Which of these is permitted? A. Salam only. B. Salam and Murabaha only. C. Salam and Istisna only. D. Salam, Murabaha and Istisna.

25.

In accordance with guidelines issued by The Basel Committee for Banking Supervision, corporate governance should involve which stakeholders? A. Staff only. B. Staff and customers only. C. Staff, customers and suppliers only. D. Staff, customers, suppliers, governments, supervisors and the community

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ANSWERS
1. Answer: B Chapter: 2 section 7.2 Answer: C Chapter: 3 section 2.3.2 Answer: A Chapter: 3 section 6.1 Answer: B Chapter: 3 section 7.3 Answer: B Chapter: 4 section 5.3 Answer: B Chapter: 4 section 6.1 Answer: B Chapter: 4 section 7.7 Answer: B Chapter: 4 section 8.1 Answer: B Chapter: 4 section 11.1 Answer: D Chapter: 6 section 2 Answer: C Chapter: 7 section 4.1 Answer: C Chapter: 8 section 1 Answer: B Chapter: 9 section 2.2 Answer: C Chapter: 9 section 2.4 Answer: D Chapter: 9 section 4 Answer: B Chapter: 9 section 6 2. 3.

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Answer: A Chapter: 3 section 4.2 Answer: B Chapter: 3 section 9 Answer: D Chapter: 9 section 1.2.2 Answer: C Chapter: 2 section 5.2 Answer: A Chapter: 2 section 7 Answer: C Chapter: 3 section 5 Answer: B Chapter: 3 section 9.2 Answer: D Chapter: 4 section 2.2 Answer: D Chapter: 6 section 1.1

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QUESTIONS
These questions are included to test knowledge gained through reading the workbook. For a List of Arabic terms that must be known for the examination, please refer to pages 219-220 of the workbook. 1. Which one of the following types of contract is classified as a bilateral contract? A. The making of a gift (hiba). B. The loan of some money (qard). C. The creation of a will (wassiyyat). D. The establishment of a partnership (shirkah). 2. Under a Murabaha to the Purchase Orderer (MPO), what is the main purpose of the Hamish Jeddiyah (earnest money) component? A. To provide the mark-up. B. To pay for supervision. C. To cover any losses due to non-performance. D. To fund the Zakat. 3. The three main components of the Fixed Assets figure which appears on the balance sheet of a UK company are tangibles, intangibles and: A. stock. B. investments. C. revaluation reserves. D. issued share capital. 4. Zakat, which is due to be paid by a financial institution, is calculated based on either 2.5% or 2.5775% depending on whether: A. the institution operates as a windows model or not. B. the institution is deemed to have made a profit or not. C. a net asset method or net invested method is being used. D. a lunar calendar year or solar calendar year is being used.

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5.

When considering AAOIFI Sukuk standards, one of the key differences between Musaqaha assets and Muzaraa assets is that: A. under Musaqaha, the Sukuk holders do not have to perform any work. B. under Musaqaha, the Sukuk is not eligible for trading. C. under Muzaraa, the element of risk is not required to exist. D. under Muzaras, the tenor is open-ended.

6.

Which one of the following teachings is generally considered to be the key secondary source of understanding for the application of Islamic guidance to commerce? A. Sunnah. B. Quran. C. Sharia'a. D. Fiqh.

7.

Which one of the following was the first Gulf Co-Operation Council country to develop a detailed approach to Islamic banking and finance? A. Dubai. B. Bahrain. C. Qatar. D. Kuwait.

8.

Person X has made a commercial promise to sell a computer to Person Y within the next 8 weeks for a pre-agreed price. In accordance with rulings from the Islamic Fiqh Academy, this promise is binding provided: A. Person X has undertaken previous transactions with Person Y. B. Person X is deemed to be a regular seller of such products. C. Person Y has paid a deposit in advance to Person X. D. Person Y incurred some expenses in anticipation of the sale.

9.

Which aspect of a transaction between Person X and Person Y means that it would be treated as a contract which is classed as fasid? A. The price of the item being sold is unclear. B. The seller has the ability to enter into a contract but exceeded his authority. C. The buyer is making the purchase purely for speculative reasons. D. The purchase by the buyer from the seller is being made through an independent third party.

10.

One of the key differences between a balance sheet and a profit and loss account (P&L) is that: A. a balance sheet is based on a snapshot in time whereas a P&L summarises activities over a specified period. B. a P&L is based on a snapshot in time whereas a balance sheet summarises activities over a specified period. C. a balance sheet ignores the impact of debtors but not creditors, whereas a P&L ignores the impact of creditors but not debtors. D. a P&L ignores the impact of debtors but not creditors, whereas a balance sheet ignores the impact of creditors but not debtors.

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11.

In a profit and loss account, deducting the sales costs from the turnover will provide a figure which is deemed to be: A. net profit. B. gross profit. C. operating profit D. retained profit.

12.

What aspect of corporate governance is given particular prominence in Pillar 3 of the Basel II New Capital Accord? A. Efficiency. B. Social responsibility. C. Transparency D. Fairness.

13.

Which one of the following territories has issued accounting standards which are based on both AAOIFIs standards and the IFRS? A Bahrain. B. Qatar. C Saudi Arabia. D. Sudan.

14.

Which one of the following countries is BEST described as taking a neo-liberal approach to corporate governance? A. Netherlands. B. France. C. UK. D. Germany.

15.

Where a Muwaada agreement is established in relation to a product, at what point will transfer of ownership normally take place? A. On exercise of the first unilateral undertaking. B. On exercise of the second unilateral undertaking. C. Immediately after the contract of sale is executed. D. Seven days after the contract of sale is executed.

16.

In which one of the following situations is a contract MOST likely to be classed as mawqoof? A. X sells goods to Y and then discovers that Y is a minor. B. M sells several cattle to P . C. X, acting as agent for Q, exceeds his authority when selling goods to Z. D. S sells a car to T for a price which has yet to be agreed

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17.

Which one of the following types of contract is classified as a unilateral contract? A. Borrowing of an asset (iara). B. Reward for specific work done (wakala). C. Transfer of usufruct (manfaa). D. Safe custody of assets (wadia).

18.

Under a Mudaraba contract: A. the Rab Al Mal is considered to be an agent of the Mudarib. B. the Mudarib is not entitled to a proxy for the Rab Al Mal C. the Mudarib should provide the capital in full to the Rab Al Mal D. the Mudarib is considered to be a trustee of the Rab Al Mals capital.

19.

Which one of the following statements regarding a Musharaka Mutanaqisa is TRUE? A. The arrangements must not be used for pre-export finance purposes. B. The property involved must not be leased to the customer. C. The acquisition agreement must not be conditional on the rental agreement. D. The amount of rent must not go up or down during the term of the contract.

20.

Which one of the following items is normally included as a separate component within the Current Assets section of a balance sheet? A. Fixed assets. B. Debtors. C. Share premium account. D. Revaluation reserve.

21.

Which item on a UK balance sheet is normally described as profit attributable to shareholders? A. Net income. B. Net sales. C. Operating profit. D. Retained profit.

22.

In a profit and loss account, operating profit is normally obtained by taking gross profit and deducting: A. cost of sales and distribution costs. B. distribution costs and administrative expenses. C. administrative expenses and interest payable. D. interest payable and cost of sales.

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23.

How have the banking supervisors in Saudi Arabia dealt with the issue of AAOIFI standards? A. They have classed them as optional. B. They have developed an equivalent alternative. C. They have adopted them as guidelines . D. They have deemed them inappropriate.

24.

When calculating Zakat, what special rule applies in connection with assets such as livestock? A. A lower rate is used. B. An exemption limit operates. C. Payment may be made by instalments. D. Payment must be made at an earlier stage.

25.

When considering the different approaches taken on corporate governance, which one of the following countries tends to focus more on investors, shareholders and creditors to the exclusion of employees and other stakeholders? A. Italy. B. USA. C. France. D. Spain.

26.

Under a conventional insurance policy, the insured pays a premium and the financial benefits obtained can be less or more than the premiums, depending on whether a claim is made. In Islamic terms, this type of situation is described as: A. fasid. B. gharar. C. baatil. D. ribawi.

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ANSWERS
1. Answer: D Chapter: 3 section 3.4.3.2 Answer: C Chapter: 4 section 7.5 Answer: B Chapter: 5 section 2.2.2 Answer: D Chapter: 5 section 6.8.1 Answer: A Chapter: 8 section 3 Answer: A Chapter: 2 section 1 Answer: B Chapter: 2 section 4.2 Answer: D Chapter: 3 section 3.1 Answer: A Chapter: 3 section 3.4.2 Answer: A Chapter: 5 section 2.1 Answer: B Chapter: 5 section 2.3.3 Answer: B~ Chapter: 5 section 4.1 Answer: C Chapter: 6 section 1.2 Answer: C Chapter: 6 section 3.2 Answer: C Chapter: 3 section 3.2 Answer: C Chapter: 3 section 3.4.2 2. 3.

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17.

Answer: A Chapter: 3 section 3.4.3.1 Answer: D Chapter: 3 section 6.1.1 Answer: C Chapter: 4 section 6.2 Answer: B Chapter: 5 section 2.2.2 Answer: A Chapter: 5 section 2.3.3 Answer: B Chapter: 5 section 2.3.3 Answer: C Chapter: 5 section 4.1 Answer: B Chapter: 5 section 6.8.1 Answer: B Chapter: 6 section 3.1 Answer: B Chapter: 9 section 1.1

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