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MCQ For Chapter 11: Risk Management of Islamic Financial Institutions

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182 views3 pages

MCQ For Chapter 11: Risk Management of Islamic Financial Institutions

Uploaded by

alaa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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MCQ for Chapter 11: Risk management of Islamic financial institutions

1. The aim of the risk-return trade-off is to have ______________.


a) a balance between lowest possible risk and highest possible return
b) a balance between minimum risk and minimum return
c) a balance between highest possible risk and highest possible return
d) a balance between lowest possible risk and lowest possible return
e) no risk and highest possible return

Correct answer: a) The aim of the risk-return trade-off is to have a balance between lowest possible
risk and highest possible return.
Incorrect answers: b), c), d) and e) The answer is a. The aim of the risk-return trade-off is to have a
balance between lowest possible risk and highest possible return.

2. The risk inherent in the entire market or an entire segment of the market is called ___________.
i) unsystematic risk
ii) systematic risk
iii) controllable risk
iv) uncontrollable risk
v) undiversifiable risk

Is it:
a) i and iii only
b) ii, iv and v
c) iv and v only
d) iii only
e) i only

Correct answer: b)The risk inherent in the entire market or an entire segment of the market is called
systematic risk/uncontrollable risk/undiversifiable risk.
Incorrect answers: a), c), d) and e) The answer is b. The risk inherent in the entire market or tan
entire segment of the market is called systematic risk/uncontrollable risk/undiversifiable risk.

3. Unsystematic risk can be mitigated through __________.


a) portfolio diversification
b) portfolio concentration
c) investing in real estates
d) debt concentration
e) equity concentration

Correct answer: a) Unsystematic risk can be mitigated through portfolio diversification.


Incorrect answers: b), c), d) and e) The answer is a. Unsystematic risk can be mitigated through
portfolio diversification.

Written by Zayyad Adbul-Baki


To be used with Haniffa/Hudaib: Islamic Banking and Finance. An Introduction 978-1-4737-3460-9, © 2019 Cengage EMEA
4. The murabaha mark-up is determined by adding a ___________ to a benchmark rate usually
based on the LIBOR.
a) margin
b) mark-up
c) risk premium
d) interest rate
e) adjusted interest rate

Correct answer: c) Murabaha mark-up is determined by adding a risk premium to a benchmark rate
usually based on the LIBOR.
Incorrect answers: a), b), d) and e) The answer is c. Murabaha mark-up is determined by adding a
risk premium to a benchmark rate usually based on the LIBOR

5. An Islamic bank may be exposed to __________risk in a salam sale.


a) asset price
b) mark-up
c) commodity price
d) margin
e) exchange rate

Correct answer: c) An Islamic bank may be exposed to commodity price risk in a salam sale.
Incorrect answers: a), b), d) and e) The answer is c. An Islamic bank may be exposed to commodity
price risk in a salam sale.

6. Sukuk is one of the examples of transactions that may expose an Islamic bank to __________
risk.
a) asset price
b) credit
c) currency
d) exchange rate
e) default

Correct answer: b) Islamic banks may be exposed to credit risk with sukuk.
Incorrect answers: a), c), d) and e) The answer is b. Islamic banks may be exposed to credit risk with
sukuk.

7. Engagement in future and forward contracts are prohibited by the shari'ah, but Islamic financial
institutions adopt ___________ as a substitution for future and forward contracts.
a) salam
b) murabaha
c) musharakah
d) istisna
e) ijarah

Correct answer: a) Islamic banks use salam as forward contracts.


Incorrect answers: b), c), d) and e) The answer is a. Islamic banks use salam as forward contracts.

Written by Zayyad Adbul-Baki


To be used with Haniffa/Hudaib: Islamic Banking and Finance. An Introduction 978-1-4737-3460-9, © 2019 Cengage EMEA
8. _____________, an Islamic substitute to options, refers to down payment with an option to
rescind the contract by forgoing the down payment as a penalty to minimize portfolio risk.
a) Bay al-tawrid
b) Debt asset swap
c) Bay al-arbun
d) Deposit swap
e) Bay al-tawrid with khiyar al-shart

Correct answer: c) Bay al-arbun is an Islamic substitute to options.


Incorrect answers: a), b), d) and e) The answer is c. Bay al-arbun is an Islamic substitute to options.

9. An example of risk absorption techniques used by Islamic banks is _______________.


a) Islamic promissory notes
b) risk mitigation analysis
c) murabaha
d) commercial guarantees
e) bay al-tawrid

Correct answer: d) Commercial guarantees are one of the risk absorption techniques used by Islamic
banks.
Incorrect answers: a), b), c) and e) The answer is d. commercial guarantees are one of the risk
absorption techniques used by Islamic banks.

10. Islamic financial institutions are exposed to a risk called __________ because of their use of
profit sharing rather than interest charge.
a) strategic risk
b) regulatory risk
c) system risk
d) profitability risk
e) moral hazard

Correct answer: e) Islamic banks are exposed to moral hazard because of their profit sharing.
Incorrect answers: a), b), c) and d) The answer is e Islamic banks are exposed to moral hazard
because of their profit sharing.

Written by Zayyad Adbul-Baki


To be used with Haniffa/Hudaib: Islamic Banking and Finance. An Introduction 978-1-4737-3460-9, © 2019 Cengage EMEA

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