THE BANK INTEREST RATES

The Bank Interest Rates in Financial Transactions: Analytical Study With Compare and Contrast Between Islamic Law and International Finance Law

Abstract

These papers will review the concept of interest in contemporary financial transactions which offer by banks and financial institutions, domestic and global.

In this study I will briefly explain the interest through the definition and identification of its history, types, reasons of appearance, advantages and disadvantages and the nature role which interest plays in the local and international economy.

Furthermore, this essay will focus on the critical analysis for this term and will attempt to display the objective opinions and thoughts regarding this case as well as the position of Islamic law on interest.

In addition, in the discussion of this issue I will clarify that why interest is prohibited or should be prohibited and the reasons for that, from the standpoint of religious and economy. Also in this study I will prove that how interest had lead to financial crisis and that bank can run his business successfully with zero interest rate. Finally, I will demonstrate how Islamic financial law approached this problem and what he suggested as alternative options for it.Introduction

Islamic banking refers to a financial system which is consistent with principles of Islamic law (or 'sharia') and guided by Islamic economics. In particular, Islamic law prohibits 'riba' or usury, the collection and payment of interest. Additionally, Islamic law prohibits investing in businesses considered unlawful ('haram') or contrary to Islamic values. In recent years, a number of Islamic banks have been created to cater to the growing demand, driven by globalization and the vast wealth of some Muslim states in the Middle East and Southeast Asia, and Islamic finance has moved from a niche position to become a mainstream component of the global banking system.

A large amount of research has been undertaken into this subject (much of which highlights the institutional aspects of Islamic social, economic, and financial arrangements) and this new four-volume collection from Routledge meets the need for a one-stop collection of the best scholarship. Its scope extends from the time of the creation of Islamic institutions in accordance with Quranic principles to the present day. And while Islamic Banking and Finance surveys the historic evolution of Islamic financial institutions over the last 1,400 years, it also illustrates the directions in which the subject is moving, including its role in the new world order, good governance, and transparency, and how the gaps can be bridged between Islamic and conventional financial systems.

Banking Activities and Interest Rate Risk

Each financial transaction that a bank completes may affect its interest rate risk profile. Banks differ, however, in the level and degree of interest rate risk they are willing to assume. Some banks seek to minimize their interest rate risk exposure. Such banks generally do not deliberately take positions to benefit from a particular movement in interest rates. Rather, they try to match the maturities and repricing dates of their assets and liabilities. Other banks are willing to assume a greater level of ...