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This paper aims to investigate the effects of eliminating Riba in foreign currency transactions. Riba or interest arises when foreign currencies are bought and sold at different rates. From the Islamic perspective, the difference between the buying and selling rates of foreign exchange will constitute Riba. Also, this paper examines the effects of eliminating such Riba on major macroeconomic variables.

This study is based on the hadith which imply that if buying and selling rates of currencies or foreign exchanges are same, i.e. if one sells BD1 = Dh10 and Dh10 = BD1 on spot, there will be no Riba. This can be guaranteed if the Islamic banking system introduces the technology, often known as FinTech interest-free foreign exchange bank machines (IFfexBM), which will automatically dispense BD10 for Dh100 and vice-versa, both locally and globally, and it will have tremendous positive effects in the economy. Furthermore, the effects of introducing FinTech for eliminating Riba will be analyzed on economic and international trade activities by using aggregate expenditure (AE) and aggregate output model within the tenets of Islamic principles.

If Islamic banks (IBs) can introduce FinTech global network system where any client can buy or sell foreign currency at the same rate without any markup, it will increase the market share for IBs by increasing the number of customers and number of branches, and it will increase the inflow of funds and volumes of transactions, especially in international trade, global financial transactions and cross-border shopping. Such an increase in transactions will increase AE and AE will continuously shift up. Such an upward shift will have positive effects on equilibrium output, employment and prosperity.

This is, perhaps, one of the latest attempts to eliminate Riba from foreign exchange transactions by introducing FinTech IFfexBM in each and every locality. Such elimination of Riba will not only reduce the cost of cross-border transactions but it will also reduce cost in international trade and financial transactions among nations, and therefore, it will have expansionary effects on equilibrium output, employment and global prosperity.

The national objectives of forward exchange controls are to restrain speculation in foreign exchange, to limit international capital flows and to affect the forward exchange rates. Restrictions on forward transactions are economic welfare costs for enterprises and banks, which are analysed in terms of risk‐return and supply‐demand theory. Empirical answers to whether forward exchange control is really necessary await collection and disclosure of company currency exposure, which itself may contribute to the national objectives implicit in forward exchange controls.

The purpose of this paper is to present the essential role that currency order flow plays in the foreign exchange markets of emerging economies in the determination of their currencies in the short and the long-run against major currencies of the world, which cannot be over emphasized, most especially against the US dollar. Insomuch that, if some of these emerging economies can be successfully transmitted into full development, it would be a good model for other emerging economies and the world at large.

A hybrid model (portfolio shift model) proposed by Evans and Lyons (2002a, 2002b) is extended to analyze a data set of every quarter of an hour currency order flow and currency exchange rate fluctuations of Thai Baht (THB) against the US$ for the period of six years (January 2010 to December 2015). To reflect the pressure of currency excess demand, the authors construct a measure of currency order flow in the Thailand currency exchange market. Vector autoregression model is applied to estimate the effectual role of currency order flow in the determination of exchange rate for the THB against the US$.

Currency order flow indeed accounted for a sizeable and significant portion of the fluctuations in the THB and the US$ exchange rate.

Insomuch that, the results show that currency order flow has significant explanatory power in the emerging markets economy to capture the THB exchange rate variability, and it then brings to the attention of the Thailand Monetary Authority the importance that should be attached to the market microstructure.

This case study examines the controversial practice by the Commonwealth of Australia during the period 1988–2002 of using currency swaps as part of its debt management strategy. Although the strategy provided a positive return overall, the impact of currency swap usage created significant year-by-year variations in returns, which posed a risk to debt interest and financing requirements. This suggests that the risk limits imposed on this strategy were both inappropriate and insufficient. Nonetheless, these findings provide insights into how such a policy could best be implemented given recent proposals (OECD, 2007) for derivatives use by public debt managers.

Problems in accounting for the translation of foreign currencies are as old as money itself, as far back as the ancient Greeks. In the USA these problems have been of primary concern in the twentieth century. Interest in accounting for foreign currency translation seems to have varied directly with the instability of exchange. Of particular note is the interest created by the unsettling economic effects of the First World War, Second World War and the Vietnam War. The standard setting bodies of the accounting profession, including the Committee on Accounting Procedures of the 1930s, the Accounting Principles Board which followed, and particularly the current Financial Accounting Standards Board, have devoted significant efforts to the development of accounting principles in this area, culminating in the present FASB Statement No. 52.

This study compares the effectiveness of money market hedges and options hedges for both payables and receivables denominated in British pounds, German marks, Japanese yen and the Swiss franc. Data on interest rates, exchange rates, and options contracts were obtained from public sources for two recent time periods. This information was used to determine, for each currency: 1) the lowest rate of exchange for payables, and 2) the highest rate of exchange for receivables for each hedging technique. Unique “money market hedge exchange rate factors” and “options hedge exchange rate factors” were developed to facilitate comparisons between the two hedging techniques.

Auditors nowadays must be aggressive and involved in risk assessment and analysis. This paper identifies, analyzes, and recommends a solution to a current problem in accounting for foreign‐currency hedges. This is accomplished by an examination of the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivatives Instruments and Hedging Activities, as issued in June 1998. Multi‐currency accounting is recommended as an alternative to functional‐currency accounting. The information generated by the multi‐currency versus the functional currency (as advocated in the SFAS 133) accounting methods for using options as hedging instruments is illustrated. Multi‐currency accounting excels in its transparency. It more clearly provides information on the respective exposure positions of the hedged items and the hedging instruments as well as the notional amounts. Auditors’ risk assessment and analysis can now be effectively performed under this system.

Companies resident in the United Kingdom suffer from a very tight set of restrictions on exchange control. The rules regarding trading are quite different from those applied to investment. Various types of investment are treated differently. The following paper describes the more important aspects of the UK exchange control regulations, including the rules for remitting foreign profits and the investment currency market. A brief critique of the current regulations is also provided.

Drawing upon underinvestment theory and clientele effect hypothesis, this paper aims to examine the effects of foreign currency (forex) exposure and Shari’ah-compliant status on firms’ financial hedging strategy.

Based on data of 250 nonfinancial firms listed on Bursa Malaysia from 2010 to 2018 (2,250 firm-year observations), the authors test the impact of forex exposure based on a vector of foreign-denominated cash flows (FCF) indicators and firms’ Sharīʿah-compliant status on two proxies of financial hedging decisions, namely, the ratio of the notional value of currency derivatives to total assets and a binomial measure of hedging status. The hedging decision models are estimated using panel logistic regression and system generalized method of moments.

The results indicate significant positive effects of the forex exposure indicators on firms’ propensity to hedge. However, the impact of forex exposure is most prevalent via total FCF. The results also reveal significant positive effects of Sharīʿah-compliant status on firms’ propensity to hedge but its negative impacts on the value of currency derivatives they use. The results suggest that Sharīʿah-compliant firms refrain from engaging in currency derivatives to avoid riba’ and subsequently subdue the clientele effect. However, when the forex exposure reaches higher levels, engagement in currency derivatives becomes a matter of tentative necessity (dharurat).

This study relies exclusively on the disclosure of foreign currency risk and management data in the annual reports of listed companies. Consequently, this limits the sample size to only those nonfinancial listed companies with complete data for the study period. Also, since none of the companies reports using Sharīʿah-compliant derivatives, the authors thus assume that they use derivative instruments that tolerate “riba.”

Given the significance of forex exposure on hedging decisions, the accounting profession must strictly adopt FRS 7 and FRS 139 for all listed firms to avoid market scrutiny and sustain their clientele. The results also call for the Islamic market regulators to include mandatory disclosure of conventional currency derivatives in screening firms for clearly prohibited activities to help enhance the credibility of its Islamic financial market.

Due to difficulty accessing relevant cash flow data, the study is among the few studies that measure forex exposure using FCF and test more proxy indicators. This study is perhaps the first to examine the Shari’ah perspective on currency derivatives in corporate forex risk management.