October 30, 2017
The main aim of this research is to demystify the nature of Islamic financial instrument, and revenues generated by each of these instruments and the risk attached with these instruments. We have found that Islamic financial instruments are divided into three categories: the first one are financial instruments based on assets, and which includes: Murabaha, Salam, Istisna’a, and leasing. The second category are financial instruments based on Profits/Losses Sharing, and this category includes: Musharaka and Mudharaba contracts. The third category is Sukuk (i.e. Islamic Bonds) (including Islamic funds). The three Islamic financial instruments categories face the same risks facing conventional financial instruments (i.e. Credit risk, Market risk and Liquidity Risk), but in a different manner and with different effects on revenues. Key Words: Islamic finance? Financial Risk? Financial Instruments? Derivatives? Hedging.