The Benchmark Issue in the Islamic Financial System

1999 ◽  
Vol 16 (2) ◽  
pp. 45-53
Author(s):  
Zamir Iqbal
Keyword(s):  
Interest Rate ◽  
Financial Market ◽  
Opportunity Cost ◽  
Conceptual Development ◽  
Cost Of Capital ◽  
Financial System ◽  
Fixed Rate ◽  
Q Theory ◽  
Lending Decisions ◽  
Similar Risk

This paper identifies a major lacuna in the conceptual development ofIslamic financial market operations. It argues that in the absence of awell developed benchmark that would facilitate macro- and micro-leveldecision making with regards to cost of capital and opportunity cost ofinvestments in comparative projects of similar risk, Islamic financialinstitutions are relying on interest rate-based indices such as the LondonInter-Bank Offer Rate (LIBOR) to make lending decisions. The authorcontends that this is clearly unacceptable since Islam disallows a predeterminedor fixed rate of capital. The paper then proposes a benchmarkbased on Tobin’s q theory of investment. The author further maintainsthat unlike existing alternatives which are limited to macro-levelapplications only, the q-based benchmark would be useful for firms andbanks (micro-decisions) as well as governments and institutions(macro-planning).

Effects of SFAS 133 on the Risk Relevance of Accounting Measures of Banks’ Derivative Exposures

2011 ◽  
Vol 86 (3) ◽  
pp. 769-804 ◽  
Author(s):  
Anwer S. Ahmed ◽  
Emre Kilic ◽  
Gerald J. Lobo
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Cost Of Capital ◽  
Foreign Exchange Rate ◽  
Bond Markets ◽  
Fixed Rate ◽  
Interest Rate Derivatives ◽  
Negatively Associated ◽  
Sfas 133 ◽  
Bond Spreads

ABSTRACT: We provide evidence on the effects of SFAS 133 on the risk relevance of accounting measures of bank derivative exposures to bond markets. First, we find that interest rate derivatives classified as hedging are more negatively associated with fixed-rate bond spreads after SFAS 133. We also find that hedging derivatives offset non-trading positions to a greater extent after SFAS 133. Second, for the largest 25 banks, we find that interest and foreign exchange rate trading derivatives are more negatively associated with fixed-rate bond spreads after SFAS 133, consistent with more economic hedges being classified as trading after SFAS 133. For these banks, trading derivative exposures offset non-derivative trading exposures to a greater extent after SFAS 133. Our results suggest that, contrary to critics’ claims, SFAS 133 has increased the risk relevance of accounting measures of derivative exposures to bond investors and benefited banks in terms of reducing their cost of capital.

Russian Banking Sector under World Financial Market Uncertainty: Problems and Prospects

2008 ◽  
pp. 4-19 ◽  
Author(s):  
A. Ulyukaev ◽  
E. Danilova
Keyword(s):  
Emerging Markets ◽  
Financial Market ◽  
Banking Sector ◽  
Financial System ◽  
Local Market ◽  
Market Uncertainty ◽  
Balanced Growth ◽  
Banking Sector Development ◽  
The World ◽  
The Usa

The authors point out that the local market crisis - on the USA substandard loan market - has led to the uncertainty of the world financial market. It has caused the growing demand for liquidity in the framework of the world financial system. The Russian banking sector seems to be more stable under negative changes than banking systems of other emerging markets. At the same time one can assume that the crisis will become the factor of qualitative shift in the character of the Russian banking sector development - the shift from impetuous to more balanced growth.

scholarly journals The most appropriate discount rate

2013 ◽  
Vol 4 (03) ◽  
pp. 391-400 ◽  
Author(s):  
David F. Burgess ◽  
Richard O. Zerbe
Keyword(s):  
Private Sector ◽  
Discount Rate ◽  
Opportunity Cost ◽  
Time Preference ◽  
Cost Of Capital ◽  
Rate Of Return ◽  
Social Time ◽  
The Social ◽  
Benefits And Costs

The social opportunity cost of capital discount rate is the appropriate discount rate to use when evaluating government projects. It satisfies the fundamental rule that no project should be accepted that has a rate of return less than alternative available projects, and it ensures that worthy projects satisfy the potential Pareto test. The social time preference approach advocated by Moore et al. fails to satisfy either of these criteria even in the unlikely case that the private sector behaves myopically with respect to a project’s future benefits and costs.

scholarly journals The effectiveness of capital management strategies used by the investment funds in Poland

2014 ◽  
Vol 15 (2) ◽  
pp. 119-129
Author(s):  
Paweł Trippner
Keyword(s):  
Financial Market ◽  
Financial Intermediation ◽  
Management Strategies ◽  
Financial System ◽  
The State ◽  
Financial Intermediaries ◽  
Investment Strategies ◽  
Capital Management ◽  
Investment Funds ◽  
Location Policy

Abstract Collective investors play an extremely important role in the financial system of the state and in the economy. They operate in the financial market as institutions that enable households and businesses to convert savings into investments. Investment funds are the most conventional institutions which are dealing with financial intermediation. The main purpose of the submitted paper is to characterise the essence of investment funds operation in the role as financial intermediaries, to present the investment strategies and to characterise the methodology for measuring the effectiveness of capital management entrusted by the clients. The author has formulated a research hypothesis, according to which, the strategies of capital location policy used by the investment funds have an impact on the level of their performance, while funds holding higher risk portfolios perform better compared to the funds using passive investment strategies

scholarly journals Equilibrium risk shifting and interest rate in an opaque financial system

2013 ◽  
Vol 63 ◽  
pp. 117-133 ◽  
Author(s):  
Edouard Challe ◽  
Benoit Mojon ◽  
Xavier Ragot
Keyword(s):  
Interest Rate ◽  
Financial System ◽  
Risk Shifting

Problems of Russia’s Integration into the Global Financial System

2015 ◽  
pp. 82-90
Author(s):  
A. Kuznetsov
Keyword(s):  
New York ◽  
Interest Rates ◽  
Financial Market ◽  
Low Income ◽  
Financial System ◽  
Developed Countries ◽  
The United States ◽  
International Investment ◽  
Short Period ◽  
Global Financial System

The author examines problems of Russia’s integration into the global financial system since early 1990s. During this short period of time Russia has turned from a net debtor into a net creditor. This is evidenced by its current net international investment position, as well as by active participation in the formation of credit resources of the key international financial institutions, particularly IMF. Still, the net investment income of Russia is negative. Such a disadvantage is explained by the difference in interest rates between payments of Russia on its external obligations and receipts as income from investments in foreign assets, mainly low-income bonds of developed countries, which form Russian international reserves. For three centuries the United Kingdom and the United States have been playing key role in the development of the global financial system. Today London and New York still operate nearly two thirds of the volume of global flows of capital in the international financial markets. Thus, as one of major economies in terms of GDP and as a resource-richest country of the world, Russia, as author argues, can rightfully claim for a more adequate share of income from the global financial intermediation. Obstacles include the lack of development of the domestic financial market and insufficient international demand for financial instruments denominated in Rubles. Russian Ruble remains a purely internal currency which practically is not used in the international trading and financial operations. At this stage, Russia’s inability to influence the basic conditions of refinancing on international capital markets, as well as the recent Western sanctions make impossible the full-scale participation of Russia in the processes of financial globalization. The author concludes that alternative way of Russia’s entry into the global financial system lays in playing the key role in the creation of the regional financial market of the Eurasian Economic Space.

Does Financial Market Structure Impact the Cost of Capital?

2017 ◽  
Author(s):  
James A Brugler ◽  
Carole Comerton-Forde ◽  
Terrence Hendershott
Keyword(s):  
Market Structure ◽  
Financial Market ◽  
Cost Of Capital ◽  
The Cost

How Do Homeowners Choose Between Fixed and Adjustable Rate Mortgages?

2016 ◽  
Vol 06 (04) ◽  
pp. 1650013 ◽  
Author(s):  
Yevgeny Mugerman ◽  
Moran Ofir ◽  
Zvi Wiener
Keyword(s):  
Interest Rate ◽  
Housing Prices ◽  
Optimal Choice ◽  
Housing Finance ◽  
Short Term ◽  
Fixed Rate ◽  
High Interest Rate ◽  
Theoretical Literature ◽  
Rate Environment ◽  
Adjustable Rate

Housing is the most important asset in the portfolio of most households. Understanding the households’ decision on housing finance has important implications from a policy perspective, due to the effects it may have on the housing prices, on the housing market stability and on household welfare. The theoretical literature on housing finance focused on figuring out the optimal choice between fixed rate mortgages (FRMs) and adjustable rate mortgages (ARMs). We argue that the standard economic criteria are sometimes inadequate to explain household’s choices, which may be motivated by psychological factors. In other words, we claim that household’s choice depends only partially on the findings of the theoretical literature. We examine the effect of changes in the short-term market interest rate on the households’ choice between FRMs and ARMs. We test this effect using a unique data provided to us by the Bank of Israel, which contains detailed information on the household’s decision between FRM and ARM contracts in Israel in the past decade. The results of our analysis demonstrate a significant association between FRM preference and short-term interest rate reduction. Moreover, we find that the change in the short-term interest rate is more salient to the borrowers in periods of a high interest rate environment. We attribute these findings to Tversky and Kahneman (1974) availability and representativeness heuristics.

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