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Investment in Financial Derivatives Contracts from an Islamic Perspective

Author

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  • Yesser Abdelkarim Karim Mohammed Hourani
  • Mohammed Ali ZARAI

Abstract

This research aims at exploring the nature of financial derivatives (FD) and their associated activities, and thus highlight their legitimate rule from an Islamic Perspective. Although there are many kinds of financial derivatives, this research focuses on the discussion of only three basic contracts; namely options, futures and swaps contracts, because they represent financial contracts derived from financially stable instruments such as stocks and bonds. There is no doubt that the great importance of this research lies mainly in determining the nature of these contracts and knowing their legitimate rules. In dealing with this issue, the research employs a descriptive approach which relies on first clarifying the image of each contract and its contemporary concept, second explaining the contract's performance and applications in the field of financial transactions, with reference to illustrative examples, and finally discussing its legitimate rule. The research results in uncovering the legitimate ruling on financial derivatives contracts, summed up mainly in the presence of betrayal and ignorance; leading, therefore, to the prohibition of such contracts.

Suggested Citation

  • Yesser Abdelkarim Karim Mohammed Hourani & Mohammed Ali ZARAI, 2014. "Investment in Financial Derivatives Contracts from an Islamic Perspective," International Finance and Banking, Macrothink Institute, vol. 1(1), pages 51-73, June.
  • Handle: RePEc:mth:ifb888:v:1:y:2014:i:1:p:51-73
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