Home Free Lab ReportsIn order to protect and make sure the business and overall banking system functioning very well

In order to protect and make sure the business and overall banking system functioning very well

In order to protect and make sure the business and overall banking system functioning very well, Islamic bank such as the conventional counterparts have to meet their liquidity needs and obligations. In order to meet their liquidity needs and assuage liquidity risk following the syari’ah compliment approach, Islamic banks used a very unique nature that is refused of any form of riba. Introduction and establishment of the Islamic interbank money market are necessities in order to address these issues. However, a lot of attempt that has been done by Bank Negara Malaysia, to develop Islamic Interbank money market that could help and aid liquidity management of Islamic banks and other financial institutions have up to date recorded limited success.
There are two financial tools that employs by Bank Negara Malaysia to manage the liquidity in Islamic money market. The first one is mudharabah money market tender and bay al-inah contract. Money market tender is introduced by Bank Negara Malaysia to further enhance the operation in Mudharabah interbank investment. The acceptance tender and investment tender conduct the Mudharabah money market tender to make it smoothly running. Besides, bay al-inah that is refers to issuance of Islamic paper by Bank Negara Malaysia to inject the funds to banking institutions that face problem and difficulties in meeting their daily cash flow requirements, especially those which could not meet the minimum benchmark rate in Mudharabah interbank investment. However, the banking institution is only can be traded between Bank Negara Malaysia and the banking institution that is participated.
There are a lot of instrument that can be used to meet the various needs of the market participants. There are numerous type of securities such as Islamic treasury bills, Government investment issues, bank Negara negotiable notes, Islamic negotiable instrument, Islamic accepted bill, Green Banker Acceptance and so on. However, normally one security is perfect for one investor. In order to manage the liquidity, Islamic money market use the security in many ways. For Islamic treasury bills, it is traded using the principal of bay al-dayan. Bay al-dayan is in the form of deferred payment of sales and the sale of debt is raising from a transaction. It is just allowed to trade in secondary market and in term of yield. Therefore, the banding system that is corresponding to Malaysian Treasury Bills is significant to the Islamic treasury bills.
Besides, the government investment issues is used as a monetary instrument by the central bank and can be traded based on bay al-dayan in the secondary market. In order to offer the stable stream of income, the profit based Government Investment Issue by the government to provide a stable stream of income for longer period of time. The bank Negara Negotiable

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