Gharar In Foreign Exchange Case Study

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5. 1 Introduction The forward market in foreign exchange exists among commercial banks and finance house. Usually, a bank agrees to sell a currency against another currency at an agreed priced but the delivery of both the currencies is made in the future. The price is determined by the supply of and demand for the respective currencies for each maturity. The forward market is difference with futures contracts. Firstly, a forward contract is individually negotiated and the futures contracts have standardized features. Next, a forward contract is privately negotiated and futures contracts are negotiated in exchanges and the last is when a forward contract is not readily tradable, the futures contracts are readily extinguishable. There are three…show more content…
Currency forward settlement can either be on cash or a delivery basis, provided that the option is mutually acceptable and has been specified beforehand in the contract. The mechanism for determining a currency forward rate is straightforward, and depends on interest rate differentials for the currency pair (assuming both currencies are freely traded on the foreign exchange market). . The currency forward rate is merely based on interest rate differentials, and does not incorporate investors’ expectations of where the actual exchange rate may be in the…show more content…
Among all the jurist say any contract that involve risk and uncertainty or gharar is become unacceptable. Each party of the contract must be clear as to the quantity, specification, price, time, and place of delivery of the contract. A contract such as to sell fish in the river involves uncertainty about the subject of exchange, about its delivery, and this is not permissible. There are several of hadiths forbid contracts involving uncertainty. Gharar or uncertainty is might leads to the possibility of speculation of a variety which is forbidden. Speculation in its worst form, is gambling. The term used for gambling is maysir which literally means getting something too easily, getting a profit without working for it. It is explicitly prohibited to gain unearned incomes without much productive. In the forward contract, the possibility of gains or losses will be incurred when economic units to speculate on the future direction of exchange rates. Exchange rates are volatile and remain unpredictable at least for the large majority of market participants. So, a possibility to gain or losses might lead

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