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The Forward Market for Currencies
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Chapter Summary
Before starting the discussion on the legality of forward currency markets in Islamic law, it is necessary to establish the legal status of modern currencies in Islamic law. Recognizing the benefits of forward currencies trading in the modern economic system and being aware of the general agreement that a deferred contractual obligation in foreign currencies is illegal in Islamic law, Muslim scholars are striving to find the suitable Islamic alternative, which can secure some of the benefits of the forward currency exchange without contravening Islamic rules. Thus, the idea of mutual promise in currency exchange has been developed. A solution proposed for an importer to protect himself against currency fluctuation is that he should buy the amount of currency needed for the settlement of his obligation and deposit it in the Islamic bank and withdraw it when the time to settle his obligation comes.
Keywords: cooperative fund; currency basket; currency exchange; deposit; forward currency markets; Islamic law; mutual loans; mutual non-binding promise
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