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If2104

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Bahrain institute of banking and finance
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IF2104- Islamic Investment Banking
Question 3
A
There are various quantitative filters that are applied by the Dow Jones Islamic Market Index.
One of quantitative filters is that a firm whose interest bearing debt divided by the immediately
12 month average market capitalization must not exceed market cap of 33%. In this case, the
debt covers short term or long term interest based on borrowing. The leniency is founded on the
logic where leveraging by firms is an essential component and rather a must of corporate growth
nowadays, and Islamic funding are not yet accessible everywhere. Another quantitative filter is
that accounts receivable from prohibited items plus total interest divided by the immediate 24
months average market capitalization must not surpass 5%.
B
There are various differences between commonly used filters applied by various bodies such as
Dow Jones, with the shari’a screening methodology applied by the SAC of Bursa Malaysia. One
of the commonly used filters is leverage. In Dow Jones, total debt to trailing 12 month moving
average market is <33% while in SAC it is not applicable. As regards the filter receivables, in
Dow Jones the accounts receivables to total asset ratio is <45% while in SAC the accounts
receivable is not applicable. With regard to the filter of Non-Halal income, in Dow Jones it is
less than 5% while within the SAC it is less than 5%, 10%, or even 25% as the case may be.
C.
The Dow Jones Islamic Market Index was the primary effort by any worldwide index source to
generate a determination instrument for Shari’ah-submissive stockholders and to decrease the
exploration expenses of establishing and determining Shari’ah-obedience by forming a
worldwide world of Shari’ah-screen firms accepted by a Shari’ah administrative committee.
Different from other index dealers who subcontract Shari’ah screening to already prevailing
Shariah boards to lessen costs, Dow Jones Indexes created the monetary and quality obligation to
establish its Shari’ah managerial committee for the aim of directing on the Dow Indexes.

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IF2104- Islamic Investment Banking Question 3 A There are various quantitative filters that are applied by the Dow Jones Islamic Market Index. One of quantitative filters is that a firm whose interest bearing debt divided by the immediately 12 month average market capitalization must not exceed mark ...
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