Two foreign currency exchange transactions were executed between two Islamic banks located in two different countries

Fatawa Question

Two foreign currency exchange transactions were executed between two Islamic banks located in two different countries. The transactions were in two different currencies and their execution was as follows : At the request of one of its customers, Islamic bank a approached Islamic bank b with a request to sell certain amount of canadian dollars (Ca $) against UAE dirhams (AED) on spot basis as per the market rate on that date ; The treasury of b agreed, and asked a to credit the equivalent AED amount to its account held with B’S correspondent bank (B’S AED Nostro account) on the due date, which was within two working days of the transaction date ; on due date, a approached b with a request to re-purchase from a the same amount of CA$ on a spot basis as per the current market rate. This was due to a’s customer advising the bank that it no longer needed the Ca $ ; The treasury of b agreed, and due to fluctuations in currency exchange rates on the re-purchase date, B became entitled to a certain profit compared to the original AED amount it paid to B ; on the third day (i.e. The next day of due date of the first transaction) a discovered that b did not credit the sold amount of CA $ to the account of a held with its correspondent bank (A’S Ca $ Nostro account). It was revealed that this was due to a human error at Islamic bank B’S treasury department ; as a result, a had no balance of Ca $ to be paid to b as consideration for the second sale transaction (the re-purchase of CA $ by B) ; in order to net off both transactions, b agreed to pay the realized profit from the two transactions to a as compensation. Shariah guidance is sought as to whether a is able to accept the compensation amount from B.

Fatwa

Click hereto view more

Publisher

Islamic Finance News

Publication Date

2014-11-12

Country of Publication

Malaysia

Main Subjects

Economics & Business Administration
Islamic Studies

Data Type

Fatawa

Language

English

Record ID

BIM-783170

• APA
• MLA
• AMA