01 Multiple choice — 50 questions
One attempt per option. A correct answer locks the question and explains itself; a wrong one only disables that option, so you can keep trying. The running score sits at the bottom of the page.
02 Written questions — 15 questions
Answer each in full before opening its model answer. The model answers are written at the length a full-mark response needs.
1. Define a security, break the definition into its four working parts, and explain the two types of security.
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A security is a financial instrument that represents an ownership position or a credit, issued by companies or governments in the form of shares or bonds, and traded in the stock market (the bourse).
What it is: a financial instrument — a document with monetary value. What it represents: ownership or a credit (a debt owed to you). Who issues it: companies or governments. Where it trades: the bourse.
Title deeds (shares) represent equal parts of the company's capital; the holder is a part-owner with voting rights who receives dividends. Debt deeds (bonds) are a promise from a bank or company to pay a specific amount on a certain date in exchange for interest; the holder is a creditor, and bonds are usually issued because the company needs a loan to expand. Dividends belong to shares and interest to bonds — never swap them.
2. Explain the four differences between a regular market and a stock market.
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1. Meeting: in a regular market the seller meets the buyer face to face; in a bourse deals are sometimes done through brokers and intermediaries.
2. Location: in a regular market the goods are in front of the dealers; in a bourse they are kept elsewhere, in warehouses or private banks.
3. Inspection: in a regular market delivery and pricing happen after the buyer checks the goods; in a bourse there is no inspection before the deal.
4. Reality: in a regular market buying and selling are real; in a bourse the deal can be speculation on price differences without paying the price or delivering the goods — “can be”, not always.
In one line: in a bourse, everything is one step further from the actual goods (M.L.I.R.).
3. Define the stock exchange, distinguish a broker from a dealer, and list what the exchange does and what trades on it.
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A stock exchange is a marketplace where securities, such as stocks and bonds, are bought and sold by brokers and dealers. A broker buys and sells for a client; a dealer buys and sells for their own account.
The exchange gives investors a platform to trade, helps with price discovery and liquidity, and sets rules to keep trading fair — for example the NYSE and the LSE. Traders traditionally bought a “seat” to become members; this is less common now that trading is electronic, though some exchanges still lease memberships.
What trades (S.B.C.F.): stocks (ownership), bonds (debt securities), commodities such as gold or oil, traded through futures contracts, and foreign exchange, which usually happens in a separate market.
4. Explain what preferred shares and enjoyment shares are, and why each is forbidden.
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Preferred shares give special rights to attract subscribers: a fixed profit whether the company profits or loses, recouping the full share value on liquidation, and more than one vote. They may not be issued: first, a fixed profit regardless of profit or loss is riba — it turns an owner into a lender; second, treating shareholders unequally contradicts the justice Islam requires.
Enjoyment shares have their nominal value repaid early, while the company still runs — typical of depleting businesses such as petroleum drilling, which refund shares annually and choose them by lottery. They are not permissible: once a holder recovers the value of their shares they are no longer a partner in the capital or the work, so any further profit is illegitimate money; and the lottery adds manipulation and uncertainty. Together: consuming others' wealth unjustly, plus gharar.
5. State the five conditions under which dealing in shares is permissible, with the reason for each.
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1. Halal activity: the company's objectives and core business are lawful — shares in a company making alcohol or running usurious banks are impermissible, because its profits are unlawful and buying in is partnering in sin.
2. Clean of riba: the company does not deal in riba, even in some of its transactions.
3. Clear company: it is known and transparent, with clear integrity and financial health.
4. Not preferred shares: fixed profit is riba and unequal treatment is unjust.
5. Not enjoyment shares: no partnership is left after repayment, and the lottery adds gharar.
Mnemonic: “Halal, Clean, Clear, Not-P, Not-E.”
6. Explain the four values of a share and say which of them change, and why.
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Nominal (par) value: the face value printed on the deed, the legal minimum price at which shares can be issued. It is fixed.
Issue value: the price at which shares are offered to the public in an IPO or a new issue; it is set at each issue.
Real value: assets minus liabilities — the share's actual financial worth. It changes with the company's profitability.
Market value: the current trading price on the exchange. It changes with supply and demand, speculation, and political and economic conditions.
Real value comes from the balance sheet, market value from the exchange (N.I.R.M.: printed → offered → worth → traded).
7. Compare bonds and shares across the four differences the lecture gives.
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1. What it is: a bond is a debt on the company; a share is a portion of the capital.
2. Return: a bond earns a fixed profit whether the company is in profit or loss; a share earns nothing if the company makes no profit.
3. Rights: a bondholder has no general assembly, no vote and no control; a shareholder can attend, vote, control and enjoy other privileges.
4. At dissolution: bonds are repaid first; shares get nothing until bonds and debts are paid.
“Debt, Fixed, Silent, First” — flip each word and you describe a shareholder.
8. State the ruling on bonds with its evidence, then give the legitimate alternatives for companies and for governments.
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Bonds are prohibited because they are based on riba, which the Quran and the Sunnah forbid. Jabir reported in Sahih Muslim that the Messenger of Allah ﷺ cursed the one who accepts riba, the one who gives it, the one who records it and its two witnesses, and said, “They are all the same.”
A company in deficit should raise capital through equity — issuing new shares — or by forming joint ventures and partnerships.
A government in deficit may use good loans from individuals without riba; advance zakat collection, as the Prophet ﷺ took the zakat of Al-Abbas two years in advance; encourage voluntary donations; and impose exceptional taxes (“Loan, Zakat, Give, Tax”).
9. Name the three kinds of instrument bonds go by — investment certificates, treasury bills and loan bonds — and describe each.
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Investment certificates come in three types: (a) increasing nature — money stays with the bank for up to ten years, accumulating an increase on principal and interest; (b) current yield — a specified annual interest; (c) increasing value with lottery draws — increasing interest plus prize draws, sold as an “encouragement to save”. All three pay interest on a loan.
Treasury bills are issued by the government for a short term, usually three months, sold by tenders. They have very high liquidity but scant revenue, and are the best-seller for commercial banks.
Loan bonds are negotiable, indivisible certificates of equal face value issued to subscribers for amounts lent to the company as a long-term loan through public subscription, repaid with interest over a specified period.
10. Explain why the lease ending with ownership, as commonly practised, is not allowed.
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The core problem is a contradiction between its name and its reality: it is called a lease but intended as a sale. Three problems follow (“Overpay, Unclear, Unfair”):
Overpay: the payments are above market rent because they include the buyer's equity, yet all of it is called rent; if the contract ends early, the client loses what they paid and the asset.
Unclear: the contract cannot be classified as sale or lease, each with its own rules. Structural repairs and ownership risk belong to the owner; making the tenant carry them turns it into an invalid hybrid.
Unfair: if the client defaults mid-term, keeping every earlier payment as “rent” is exploitation — they paid purchase-level amounts without receiving ownership.
11. Give the four conditions under which a sale based on leasing can be permissible, and show which problem each one answers.
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1. Period: the lease period is specified and the lease conditions apply throughout it — this removes the sale-or-lease confusion, since it is a true lease until the end.
2. Price: each installment is fixed, with no increase if payment is delayed.
3. Pass: ownership passes at the end as a gift or by sale at a nominal price, according to the earlier promise between owner and tenant — a separate transfer, not hidden inside the rent.
4. No down payment: nothing is taken at the start, so the tenant does not lose it if they cannot complete the payments — answering the unfair loss on default.
An exam answer should give both the reasons it fails and these conditions, not just “it is haram”.
12. Explain how a lease ending with ownership works, then compare it with an installment sale and with a standard lease.
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The bank leases an asset such as a car or house for a set period, at a rent that often exceeds market rent, and promises to transfer ownership through a separate agreement once every installment is paid. The client is a tenant throughout; the bank owns the asset until the end.
Vs. installment sale: both aim at ownership and are paid in structured payments, but an installment sale is one contract with ownership passing immediately, while the ownership-lease uses two contracts with ownership on the last day.
Vs. standard lease: the ownership-lease aims at eventual ownership with two contracts; a standard lease gives temporary use only, the user stays a tenant for the whole term, and there is one contract.
13. Explain Murabaha as practised by Islamic banks, element by element and in order.
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Murabaha is a cost-plus sale in which the seller fully discloses the original cost and the markup. Today it involves three parties — customer, bank and original seller.
1. The promise: the customer asks the bank to buy a specific item and promises to buy it. Before the first contract it is not legally binding, and the bank may not take any money — “don't sell what you don't have.”
2. The first contract: the bank buys from the seller and must fully own the commodity through its purchase order, checked before the second contract. The promise now binds: the customer buys or pays compensation.
3. The second contract: the bank sells to the customer at cost plus a disclosed, fixed markup, paid in installments, with no increase for late payment. “Promise, Purchase, Profit” — swap the order and the deal fails the ownership condition.
14. State the five conditions of Murabaha's second contract.
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a. Agree: both parties agree on cash or deferred payment, and the price is specified.
b. Bundle: the installment profit is part of the price, not listed as interest separate from the base price.
c. Freeze: if payment lags, the buyer pays nothing beyond the agreed installments.
d. Avoid: the goods are not items that must be exchanged hand-to-hand, like gold or dates, because Murabaha defers all or part of the price.
e. Secure: the bank may protect its rights with a guarantee or a mortgage.
15. List the seven conditions of a sale and explain which one Murabaha turns on.
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(1) Mutual consent; (2) legal capacity — mature and of sound mind; (3) legal permissibility — the item has recognised, lawful value; (4) ownership — the seller owns the goods at the time of the contract; (5) deliverability — physically or legally; (6) knowledge — goods and price clearly specified; (7) execution — the contract takes effect immediately. “Can Legal Owners Deliver Known Items Now?”
Murabaha turns on ownership: a bank that sells before it owns breaks it, which is why the bank must buy first and may take no money at the promise stage.