In an effort to help Islamic financial institutions hedge risk, global standard-setting bodies have launched a standard contract template for Islamic profit rate swaps (PRS).
By exchanging one cash flow for another, PRS function in a similar way to the interest rate swaps (IRS) widely used in conventional financial markets. But they do not use interest rates, which are banned under Islamic principles.
The template was put together by the Bahrain-based International Islamic Financial Market (IIFM) and the
International Swaps and Derivatives Association (ISDA).
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