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Abstract:
Options and futures are widely being rejected by the scholars a there is no underlying asset or parties simply liquidate the position without actual delivery raises to speculation, facts against the fundamental instruction of sale of commodities. There is a divergent array of opinions on the use of these Islamic derivatives. A swap is an agreement where two parties commit to exchange assets or series of cash flows. A plain vanilla swap is the exchange of floating interest payments with fixed interest payments. Swaps have rapidly emerged as tool for hedging and speculation. Islamic Financial Services Act 2013 in Malaysia have laid out the Islamic swaps fundamentals e.g. Islamic profit swapping or swapping of assets expected to generate varying cash flows during the certain period of time or foreign exchange swaps. Most important swap in conventional market is credit defaults swaps where buyer of swap pays an amount and get insurance for being compensated in case of default of a loan or customer. Swaps are not standardized unlike futures and options and usually take place among financial institutions. The study found some advantages and disadvantages of using Islamic derivatives.
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