Continuation
This ensures that Islamic banks assume appropriate risks in
order to discourage any malpractice in financing.
As for the management of interest rate risk, IIFSs (Institutions
Offering Islamic Financial Services) do not deal with that kind of interest-based
instruments.
Although, they are not entirely immune from interest rate
risks.
Exposure to this type of risk occurs indirectly via the price
mark-ups used for:
-
deferred sale
-
and lease-based transactions.
These are determined according to:
-
market conditions
-
and risk exposure.
To this effect, Islamic banks use a benchmark rate for
pricing their financial instruments, for example, the London Interbank Offered
Rate (LIBOR).
From the research paper of
European Central Bank
(Authors: F.Mauro, P.Caristi, S.Couderc, A.D.Maria, L.Ho,
B.K.Grewal, S.Masciantonio, S. Ongena and S.Zaher)
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