Apr 18, 2016
- Complete the sentences below. Use the key words if necessary.
- Interest-free banking
key words
Some financial institutions do not charge interest on loans or pay interest on savings, because it is against certain ethical or religious beliefs. For example, in Islamic countries and major financial centres there are Islamic banks that offer .
Islamic banks do not pay interest to depositors or charge interest to borrowers. Instead they invest in companies and share the profits with their depositors. Investment financing and trade financing are done on a (PLS) basis. Consequently the banks, their depositors, and their borrowers also share the risks of the business. This form of financing is similar to that of or who buy the shares of new companies.
Types of accounts
key words
Current accounts in Islamic banks give no return — pay no interest — to depositors. They are a arrangement between the depositors and the bank, which allows the depositors to withdraw their money at any time, and permits the bank to use this money.
Islamic banks do not usually grant overdrafts on current account. Savings accounts can pay a return to depositors, depending on the bank’s : that is, its ability to earn a profit. Therefore the amount of return depends on how much profit the bank makes in a given period. However, these payments are not guaranteed. There is no : the amount of money the investment pays, expressed as a percentage of the amount invested, is not fixed. Banks are careful to invest money from savings accounts in relatively risk-free, short-term projects. are deposits which cannot be withdrawn before maturity. They receive a share of the bank’s profits. In theory, the rate of return could be negative, if the bank makes a loss. In other words, the capital is not guaranteed.
Leasing and short-term loans
key words
To finance the purchase of expensive consumer goods for personal consumption, Islamic banks can buy an item for a customer, and the customer repays the bank at a higher price later on. Or the bank can buy an item for a customer with a or arrangement. Another possibility is for the bank to lend money without interest but to cover its expenses with a .
If a business suddenly needs very short-term capital or for unexpected purchases and expenses, it can be difficult to get in under the PLS system On the other hand, PLS means that are very close, and that banks have to be very careful in evaluating projects, as they are buying shares in the company.
- Interest-free banking
- What type of bank is it?
- • Pay interest to depositors
• Charge interest to borrowers
• Lend money to finance personal consumption goods- Conventional bank
- Islamic bank
- • Give no return on current accounts; share profits with holders of savings accounts and investment accounts
• Share borrowers’ profit (or losses)
• Buy items for personal customers with a leasing or hire-purchase arrangement- Conventional bank
- Islamic bank
- • Pay interest to depositors
- Match the two parts of the sentences.
- The basic feature of Islamic banking . . .
- is that it is interest-free.
- Islamic banks and their customers share profits and losses.
- do not receive a fixed return.
- have to share their profits with the bank.
- to venture capitalists who buy companies’ stocks or shares.
- Instead of charging and paying interest . . .
- to venture capitalists who buy companies’ stocks or shares.
- is that it is interest-free.
- do not receive a fixed return.
- Islamic banks and their customers share profits and losses.
- have to share their profits with the bank.
- Depositors in Islamic banks . . .
- is that it is interest-free.
- to venture capitalists who buy companies’ stocks or shares.
- do not receive a fixed return.
- have to share their profits with the bank.
- Islamic banks and their customers share profits and losses.
- Businesses that borrow form Islamic banks . . .
- Islamic banks and their customers share profits and losses.
- do not receive a fixed return.
- have to share their profits with the bank.
- to venture capitalists who buy companies’ stocks or shares.
- is that it is interest-free.
- Islamic banks operate in a similar way . . .
- have to share their profits with the bank.
- is that it is interest-free.
- do not receive a fixed return.
- to venture capitalists who buy companies’ stocks or shares.
- Islamic banks and their customers share profits and losses.
- The basic feature of Islamic banking . . .
- Which of the following statements could be made by customers of Islamic banks and which by customers of conventional banks?
- I get 1.5% on my current account and 3% on my savings account.
- Conventional bank
- Islamic bank
- I get a variable rate of return on my savings account, depending on the bank’s profitability.
- Islamic bank
- Conventional bank
- If I open a five-year investment account, I won’t be able to withdraw my money during this period, but I will receive a share of the bank’s profits.
- Islamic bank
- Conventional bank
- They offered me an overdraft of up to one month’s salary.
- Conventional bank
- Islamic bank
- If the bank makes a loss I could lose part of my savings.
- Conventional bank
- Islamic bank
- I get 1.5% on my current account and 3% on my savings account.
- Use the word combinations to complete the sentences.
- All businesses need . . . for everyday purchases and expenses.
- working capital
- risk capitalists
- investment account
- service charge
- I don’t pay interest but the bank adds a . . . to cover its expenses.
- risk capitalists
- service charge
- investment account
- working capital
- Islamic banks are like the . . . who buy the shares of new companies.
- working capital
- service charge
- risk capitalists
- investment account
- The bank pays me some of its profits on the money I have in my . . . .
- service charge
- working capital
- risk capitalists
- investment account
- All businesses need . . . for everyday purchases and expenses.
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