Islamic Finance Principles Intermediate MCQs

Question 1
What does the term 'riba' primarily refer to in Islamic finance?

(A) A minimal administrative fee on financial transactions

(B) Profit sharing in business ventures

(C) A mandatory charitable donation

(D) Prohibition against charging interest on loans

Question 2
Which financing agreement in Islamic finance involves one party providing capital while the other manages the business, with profits shared and losses borne by the capital provider?

(A) Mudarabah

(B) Musharakah

(C) Murabaha

(D) Ijara

Question 3
Which contract is typically used for joint investments where all parties contribute capital and share both profits and losses?

(A) Murabaha

(B) Ijara

(C) Mudarabah

(D) Musharakah

Question 4
Which of the following best defines the concept of Ijara in Islamic finance?

(A) A partnership arrangement with profit and loss sharing

(B) A leasing contract where asset usage is exchanged for rental payments

(C) A cost-plus financing arrangement

(D) A deferred payment sale agreement

Question 5
How do Islamic banking products typically differ from conventional banking products?

(A) They charge higher interest rates to compensate for risk

(B) They are exclusively based on speculative trading practices

(C) They avoid interest-based transactions and rely on asset-backed financing

(D) They use a similar interest model but with Islamic labels

Question 6
A business entrepreneur seeks financing where the bank provides capital while the entrepreneur manages operations, with profits shared according to a pre-agreed ratio. Which contract best suits this scenario?

(A) Ijara

(B) Murabaha

(C) Musharakah

(D) Mudarabah

Question 7
What is the primary purpose of Sukuk in Islamic finance?

(A) To act as a conventional fixed-interest bond

(B) To provide asset-backed investment instruments representing partial ownership in tangible assets

(C) To function as a debt instrument with deferred interest

(D) To finance charitable obligations exclusively

Question 8
Which principle in Islamic finance ensures that financial transactions are based on real economic activity and not on excessive uncertainty?

(A) Implementation of Mudarabah

(B) Use of Sukuk for funding

(C) Prohibition of Gharar

(D) Prohibition of Riba

Question 9
How does Takaful, as an Islamic alternative to conventional insurance, primarily function?

(A) By pooling funds while promising guaranteed profits

(B) Through mutual cooperation and shared risk among participants

(C) By transferring risk entirely to a profit-driven insurer

(D) By charging interest on the premiums

Question 10
Which of the following is a common critique of Islamic banking when compared to conventional banking?

(A) It charges conventional interest rates under different names

(B) It mimics conventional banking practices through fee-based arrangements despite its principles

(C) It may offer lower returns due to risk-sharing and asset-backed structures

(D) It completely rejects any form of risk management

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