BAI` `INAH 4

Resolution

103. The Council in its 22 nd meeting held on 26 th February 2002/ 13 th Zulhijjah 1422, resolved that When Issue transaction in Islamic securities market is permissible based on the permissibility of promise to sale and promise to buy.

Forward Foreign Currency Transaction

104. Transactions in foreign currency, either on the basis of spot or forward, are among the necessary transaction for an Islamic banking institution. In the current banking practices, delivery and settlement in foreign currency transactions do not take place on spot at the same time and date of the conclusion of the contract.

105. In a foreign currency spot transaction, delivery and settlement will normally take place on T+2 (two days after transaction day), whereas, in a forward transaction, settlement will be made on a pre-determined future date, for example, after one month or three months according to the terms of the contract. A similar arrangement, which is based on the concept of promise, is introduced by Islamic banking institution, whereby both parties promise to sell and buy currency at an agreed rate. As such, the actual contract takes place on T+2 for a spot transaction and on a predetermined future date for a forward transaction.

106. In its actual operation, an Islamic banking institution will immediately secure a contract booking number after both parties reach an agreement and promise each other. This booked contract will be marked to the market. In addition, there will be no actual signing of agreement on the settlement date. The issue from the Shariah point of view is whether this practice, which is based on promise, is permissible or not.

Resolution

107. The Council in its 49 th meeting held on 28 th April 2005/ 19 th Rabiul Awal 1426 resolved that an Islamic banking institution is allowed to enter into foward foreign currency transaction based on unilateral binding promise (binding only on the promisor) and the compensation for breaching of promise could be implemented. This permissibility is only applicable for currency hedging purposes. Such a transaction may be arranged between the Islamic banking 107. The Council in its 49 th meeting held on 28 th April 2005/ 19 th Rabiul Awal 1426 resolved that an Islamic banking institution is allowed to enter into foward foreign currency transaction based on unilateral binding promise (binding only on the promisor) and the compensation for breaching of promise could be implemented. This permissibility is only applicable for currency hedging purposes. Such a transaction may be arranged between the Islamic banking