The relation between intrest rates and investment and investment in Dissertation

The relation between intrest rates and investment and investment in Islamic products - Dissertation Example ..13 4. EXPECTED OUTCOMES†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦14 5. CONCLUSION†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦15 Bibliography CHAPTER 1: INTRODUCTION 1.1 Background Islamic products are acquiring revenues from large number of sources, including mainly the financial assets, investing assets as well as investing in different business organisations across the country as well as across the globe1. The essential characteristic of the Islamic banking has been that it is â€Å"free of rate of interest†2. ... The underlying principle is that the conservative credit system incorporating interest rate policy leads to an unfair distribution of national income in the society and is regarded as a type of exploitation4. In effect, the insight of any of the â€Å"pre-determined fixed rate of return† totally disconnected from the real performance of the fundamental asset is not allowable. In Islamic theory of banking, the association between the investors and the financial intermediaries is rooted in â€Å"Profit and Loss Sharing† principle as the terms of different financial transactions require reflecting a symmetrical system of risk-return distribution between the counterparties5. 1.2 Theoretical Overview Theoretically, greater level of investments on the production structure of different goods and services in the country are creating significant level of pressure on the level of prices of those goods and services. Also as the financial and capital markets of the country are more flexible to provide the necessary amounts of investable loans to these business organisations, these companies are creating further pressure on the level of inflation in the country6. Hence, the interest rates are creating the most important effects in the process of development of the country7. This is because greater investments due to lower interest rates are creating inflationary pressures which are reducing the purchasing power of the people and thus reducing demand and hence production for goods and services or income in the country8. In case of Islamic banks, interest rates are prohibited. Hence the solution is devised through employment of a profit sharing ratio based on the profit of the Islamic bank. This is also known