The following is true about Islamic finance     The financing method should be such as to bestow the risk on the lender and not the borrower       Interest is payable as long as the risk is borne by the borrower       An example of mubarah is when a bank purchases a property, sells to the owner with payments on an installment basis.       An example of Ijara is when a bank purchases the property  and rents to the borrower without requiring a final purchase price at the end of the contract   QUESTION 2 The following is true about a commercial letter of credit (LC), except     A bank that issues an LC is responsible for paying the exporter if the importer is unable to pay.       The importer's bank first issues the LC to the exporter       A LC is an off-balance sheet liability because of the risk that the importer may not be able to pay the bank when payment is due.       Once the LC is stamped "accepted" by the issuing bank, it becomes a guarantee of payment by the issuing bank

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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QUESTION 1

  1. The following is true about Islamic finance

       

    The financing method should be such as to bestow the risk on the lender and not the borrower

     

       

    Interest is payable as long as the risk is borne by the borrower

     

       

    An example of mubarah is when a bank purchases a property, sells to the owner with payments on an installment basis.

     

       

    An example of Ijara is when a bank purchases the property  and rents to the borrower without requiring a final purchase price at the end of the contract

     

    QUESTION 2

    1. The following is true about a commercial letter of credit (LC), except

         

      A bank that issues an LC is responsible for paying the exporter if the importer is unable to pay.

       

         

      The importer's bank first issues the LC to the exporter

       

         

      A LC is an off-balance sheet liability because of the risk that the importer may not be able to pay the bank when payment is due.

       

         

      Once the LC is stamped "accepted" by the issuing bank, it becomes a guarantee of payment by the issuing bank

Expert Solution
Step 1: Introduction:

To guarantee the seller that the payment will be made, buyers of large purchases may want a letter of credit.  To ensure that the seller will be paid, a bank will issue a letter of credit, thereby accepting liability for the transaction.  Before a bank will guarantee a buyer's payment to a seller, the buyer must show the bank that they have adequate assets or a sufficient line of credit to pay.

 

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