Arbitrage in the government market essay

The largest company in its industry, Western Union has serviced cash payments for thousands of well-known corporations for more than one hundred years.

Arbitrage in the government market essay

Riba prohibition of interest being the major and most widely known is central to the discussion. However, this essay deals with many other of the major financial principles, for instance Gharar avoidance of excessive riskMaisir avoidance of transactions based on luck or chance and unjust enrichment.

The essay then analyses and evaluates how many popular and intrinsic Islamic financial products used today remain commercially competitive whilst still abiding by these strict Sharia principles.

This essay also highlights a contemporary issue and idea within Islamic finance, namely that of so-called Sharia Arbitrage. The theory posits that many of the Sharia complaint products available today are not so different from their Western counterparts.

Despite the fact that methods that will be highlighted and used to ensure compliance, they do not go far enough to alter the nature of the products themselves.

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Introduction Allah has allowed trading and forbidden Riba This principle is crucial to the development of Islamic finance in the modern world. This essay will discuss the key prohibitions within Islamic finance and how the Islamic financial products abide by these Arbitrage in the government market essay.

The aim of this essay is to evaluate the ways in which these products become Sharia-complaint. This theory posits that many of the Sharia-compliant products available today are not so different from their Western counterparts, and despite the fact many methods will be highlighted ensure compliance, they do not go far enough to alter the nature of the products themselves to become compliant with the classical moral based Sharia principles.

These different sources create principles by which Muslims should live. Crucially however, it does not form a binding source of law in the sense of legally binding obligations.

However, these principles can be contracted for within a financial agreement like any other contractual clause and this is how Islamic financial products have come into fruition.

This is vast given the industry began just 50 years ago with the establishment of the Mit Ghamr Local Savings Bank in Egypt. The Islamic finance industry is also experiencing incredible growth, with some estimates putting it as high as 20 per cent in and within the United Arab Emirates at 65 per cent.

The History of Islamic Finance Islamic finance dates back to medieval times when Sharia law would govern financial transactions in the Middle East, principles that incidentally were also found within the European financial systems at the time.

Wherever trade occurred between a European and a Middle Eastern nation at the time, they tended to eschew principles of interest in favour of a profit sharing system, for instance within the trading relationships between the Ottoman Empire and the Spanish.

However, as Western financial models began to spread around the world, the principle of interest took worldwide precedence over Sharia principles.


From here, smaller Sharia-compliant banks have sprung up across the Arab world, catering for growing demand within the Arab world for Sharia-compliant banking services, sparking a trend of growth that since the late s has seen a rate of 10—15 per cent year on year. However, regardless of the business model, they must all abide by the same Islamic laws to offer similar compliant products to the markets.

Indeed Riba is the most commonly known prohibition. However the others are also important in terms of establishing a product that complies with Sharia law. Riba of hadith or riba al fadl also exists; this is in effect Riba hidden in sales, for instance, the charging extra for a foreign exchange transaction would also be forbidden as Riba.

Warde points to interest as being a common example, but also the charging of late fees would be a form of exploitation of others.

It would seem, therefore, that the unfairness associated with a rich man lending money to a poor person and making money simply via exploitation on the basis of him having money to lend, is largely unfair.

This unfairness underpins the basis of a great deal of Islamic finance. Therefore, it would be right to assume that particularly in very strict Muslim countries; compliance with certain aspects of Sharia law can be highly onerous.

Attempts to formulate a viable and successful financial system have therefore been difficult. Other key prohibitions exist, such as Gharar. Vogel further notes that Gharar: However, crucially, risk is present within all modern transactions, and to prohibit all risk taking would be to prohibit trade, which as the above seminal quote confirms, was not the aim of Allah.

Therefore, Gharar is crucially prohibiting unnecessary risk, or blind risk. This in many respects makes good commercial sense. Therefore, as Procter notes, Gharar will: Therefore, this suggests an element of flexibility within the prohibition of Gharar that is not present within Riba.

This flexibility has allowed for a greater diversity of Islamic financial products to arise through innovation. Areas such as insurance, originally strictly prohibited, are now allowed through a carefully structured Islamic finance product called a Takaful, which will be explored later.

Contracts based on luck, or effectively a gamble, are also prohibited.

Arbitrage in the government market essay

These are called Maisir or Qimar. For example, Procter points to a decision by the Court of Cassation in Abu Dhabi that held invalid foreign exchange contracts. Therefore, this would also include the trading of futures and other dealings of a similar nature, important elements of the Western financial system.Making Money with statistical Arbitrage - Generating Alpha in sideway Markets with this Option Strategy - Jan Becker - Bachelor Thesis - Business economics - Investment and Finance - Publish your bachelor's or master's thesis, dissertation, term paper or essay.

Inc. entrepreneurs tend to serve niche markets with high market turbulence, which lead to many arbitrage opportunities in so far as the founder can satisfy the wants of an uncertain market. Arbitrage - Free download as Word Doc .doc /.docx), PDF File .pdf), Text File .txt) or read online for free.

The prices of callable treasury bonds seem to be inconsistent with the prices of noncallable treasuries and an arbitrage opportunity appears to exist.

Permits instructors to introduce the treasury market, the concept of creating synthetic instruments, principles of arbitrage, and . Aug 15,  · Save. Political arbitrage is a trading strategy which involves using knowledge or estimates of future political activity to forecast and discount security values.

For example, the major factor in the values of some foreign government bonds is the risk of default, which is a political decision taken by the country's government.

Arbitrage in the government market essay

So the government may let market forces determine the long-term trend in the exchange rate but intervene occasionally to moderate large exchange rate fluctuations. This system is called managed flexible (floating) exchange rates.

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