ExpertEasy2 marksMultiple Choice
ACCA · Question 05 · Business Finance
Section A
A municipal water desalination plant is seeking to raise capital in compliance with Islamic finance principles. They wish to issue financial instruments that represent an ownership interest in the underlying desalination assets, generating a return from the asset's performance rather than paying interest.
Which Islamic finance instrument is being described?
Section A
A municipal water desalination plant is seeking to raise capital in compliance with Islamic finance principles. They wish to issue financial instruments that represent an ownership interest in the underlying desalination assets, generating a return from the asset's performance rather than paying interest.
Which Islamic finance instrument is being described?
Answer options:
A.
Mudaraba
B.
Murabaha
C.
Sukuk
D.
Ijara
How to approach this question
Identify the Islamic equivalent of a bond. Sukuk represents ownership in an asset, whereas conventional bonds represent a debt obligation.
Full Answer
C.Sukuk✓ Correct
Sukuk is the Islamic finance equivalent of a bond. However, because charging interest (Riba) is prohibited, Sukuk represents a proportional ownership interest in an underlying tangible asset or project. The return to the investor is derived from the cash flows generated by that asset, not from a fixed interest rate.
Common mistakes
Confusing Sukuk with Murabaha (which is cost-plus financing used for purchasing assets).
Practice the full ACCA FM — Financial Management Practice Exam 6
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