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CIMB Islamic offers Shariah-compliant forex option to hedge currency risks
14 October 2008

Kuala Lumpur: CIMB Islamic Bank Berhad recently launched the Islamic Foreign Exchange with Shariah-compliant Option Features or FXOP-i, a pioneer Islamic instrument that allows customers to hedge their foreign exchange (forex) risk.

FXOP-i enables customers to lock in a forex rate in advance by engaging in a Shariah- compliant financial transaction with CIMB Islamic. The net proceeds from this transaction—which is similar to the premium paid for option instruments in conventional finance—grants customers the right, but not the obligation, to exercise the option at the agreed rate on the maturity date.

“The FXOP-i represents yet another innovative offering from CIMB Islamic. With this product, customers can protect the value of their future foreign currency proceeds, fix their hedging cost at the equivalent of the option ‘premium’ and even earn a profit if forex rates move in their favour, always with the assurance that the transaction adheres to Islamic principles,” said Badlisyah Abdul Ghani, Chief Executive Officer, CIMB Islamic.

FXOP-i is based on several Islamic finance concepts namely tawarruq (trading between more than two parties) by way of commodity murabahah (sale at cost plus), Bai al-Inah (trading between two parties), Waad (promise) and Bai al-Sarf (contract of exchange, money for money). An exciting feature of FXOP-i is that customers can choose to undertake the transaction using either the commodity murabahah or Bai al-Inah concepts, thus making it an attractive solution to a wider range of customers.

“FXOP-i adds diversity and choice to the range of forex hedging instruments available in the market, currently dominated by conventional products. Now, not only can customers opt to manage the risk of their foreign currency exposure in a Shariah-compliant manner, they can also pick the most competitive solution from both conventional and Islamic products, and we hope they choose the latter” explained Badlisyah.

Other hedging instruments offered by CIMB Islamic are the Cross Currencies Profit Rate Swap (CCPRS-i) and Islamic Profit Rate Swap (PRS-i).

The minimum value for each FXOP-i transaction is USD100,000 equivalent, making it suitable for corporate seeking an alternative to conventional hedging instruments. For more information on FXOP-i, call 03-20848314 or visit www.cimbislamic.com.