Effect of US downfall on Middleeast economy

On Aug. 5, customary & Poor's (S&P) cut the US's top-rank triple-A rating down a notch, to AA+, the primary time ever, technically signaling that the country's reliability for paying its debts has decreased. additionally to the downgrade, it issued a negative outlook, suggesting that there was an opportunity it'll cut back the rating any inside 2 years. S&P discarded recent US political system efforts to demonstrate that it's acted prudently to cut back the country's deficit and restrain the expansion of future public debt. The debt burden has already reached $14.6 trillion, like one hundred pc to GDP, virtually identical ratio of Italy, whose debt has been abandoned in monetary markets over rising default fears, the Jeddah-based National business Bank (NCB) said in its report "The S&P's downgrade people and its implications on the Saudi economy" released on Wednesday.
Meanwhile, the US government continues to borrow around forty cents for each dollar it spends, whereas the economy is hardly growing and unable to come up with the required revenues to sustain its fiscal path.
S&P cited 2 reasons for the downgrade: 1) the fiscal consolidation set up agreed to be around $2 trillion in deficit reduction over consequent ten years falls short from containing the debt growth over the medium-term. 2) the extended political dialogue relating to raising the debt ceiling underscored the gap between the political parties. These indicate that measures required to restrain the expansion of public debt, like raising taxes and entitlement reforms were less doubtless to be adopted than S&P had initially envisioned.
The S&P's call wasn't a complete surprise, however the surprise within the accelerated timing since the July 14th announcement when S&P place the US on CreditWatch negative, hinting that a downgrade was imminent over consequent few months. Apparently, the announcement shortened the time amount within which S&P needed the political parties to agree on deficit reduction, with an bold $4 trillion debt reduction target. because the deficit reduction set up, that was passed last week, was considerably less at $2.4 trillion, a downgrade appeared unavoidable.

The Saudi economy
The impact of the S&P's downgrade of US's credit on Saudi Arabia economy can come back through 3 channels. the primary is thru its impact on crude oil demand and costs. Triggered by worries of a replacement economic decline or a double-dip recession within the US, the world's largest oil shopper, this may greatly undermine world energy demand. additionally, recent considerations that Europe's debt crisis may unfold to Italy, the euro zone's third-largest economy, accentuated fears of a vicious new world economic downturn. Oil costs sank over $10 a barrel last week, highlighting simply how quickly commodity markets will swing within the peak of a crisis, and continued to sag below $80 a barrel.

Apparently, the NCB report said drop in costs reflects the market's revision to expected demand growth. On Monday, light-weight sweet crude for September delivery, fell $2.08, or 2.56 percent, to the amount of $79.23 a barrel. Meanwhile, Brent North ocean crude for September delivery dropped $1.21 or 1.17 % to $102.53. additional volatility in oil costs is expected within the near-term as monetary investors cut back their long positions on the rear of risk aversion and also the unsure world economic outlook. However, the NCB believes, that the autumn in oil costs could also be nearing an finish. this may be very true if the Fed steps up its purchases people government bonds. However, though oil costs fall below the $80 a barrel level, Saudi Arabia won't have an excellent impact because the Kingdom enjoys an oversized reserve to satisfy its planned spending.

The second channel of impact on the Saudi economy is thru the US dollar. The US dollar response against most currencies can doubtless follow broader market developments. As equity and commodity markets keep falling globally, investors are doubtless to chop long positions in equities, and commodities.

These are mainly funded by short US dollar, thus whether or not or not the safe-haven standing of the US dollar is impaired over the long-term, a downward shock to markets is probably going to be US dollar positive within the close to term. There are contradictory forces at work with the pull down from the credit rating and also the push up from an equity market disturbance, for as stocks are sold and greenbacks are bought. though this is often positive for the US dollar within the short-term, once things calm down, as noted earlier, the downgrade would have a negative impact on the US dollar. Meanwhile, there could also be different considerations in FX markets that the euro AAAs aren't sturdy, given the economic problems facing the euro zone. whereas investors instinctively might want to sell US dollar and get euro, the euro sovereign problems don't look higher as a result of the US' appearance worse. With the impact of S&P's downgrade being positive on the US dollar within the short-term, it's unlikely to boost the amount of imported inflation within the kingdom, particularly that commodity costs are falling. However, weaker US dollar within the future, owing to the S&P's downgrade, could eventually contribute to higher imported inflation, the report said.

The third channel of impact is thru the official holdings people treasuries, that is believed to represent the bulk of the Kingdom's web foreign assets, currently amounting to $492 billion. The downgrade is truly additional of a referendum on the dollar instead of US treasuries, owing to the actual fact that US's ability to pay its debt obligations remains a elementary certainty as a result of the dollar remains the world's reserve currency and also the US government will still print cash to fund its obligations. Therefore, holders people treasuries like Saudi Arabia shouldn't be troubled that they will not receive interest payments on US bonds. However, the worth of these payments can basically decline, given the actual fact that with additional greenbacks in circulation owing to the printing presses, the worth of every dollar by definition declines. as long as the dominion is keeping rather more than enough to keep up the peg of the Saudi riyal to the US dollar, it's advisable that the dominion ought to prefer diversifying future excess revenues removed from US Treasuries into different real assets across completely different currencies and regions, the NCB report said.

US Treasury market
Despite the S&P downgrade, treasuries trading strengthened, with the costs of long-term treasuries soaring to high levels and accordingly yields falling any. In fact, the yield on the 10-year Treasury benchmark fell to a record low of two.034 % on Aug. 9. Demand for treasuries goes sturdy until date, with investors submitting $2.99 in bids for each dollar of the $1.26 trillion sold this year, exceeding the $2.26 in bids for each dollar of debt sold throughout the budget surplus years between 1998 and 2001. this is often additionally partly owing to speculation that the Fed may get longer period treasuries. One cannot rule out that that the US Treasuries are driven by the changing perceptions concerning financial policy, and additionally fears of a replacement euro zone sovereign debt crisis. Nonetheless, the flattening yield curve is that the opposite of what one would expect if the markets concurred with S&P's downgrade.

The US Treasuries stay the flight to quality asset category of selection, and that we don't believe that recent S&P's call can amendment that within the as regards to medium term, the report added.

It has been for a few time believed that based mostly on fiscal stance alone, the US was now not a triple A rated sovereign. however the credit rating of a rustic isn't a operate of its fiscal stance solely, in addition to for a rustic just like the US. within the case people, 2 factors are of exceptional importance, that embody the political weight and also the reserve currency standing. it's true that political system in recent months has demonstrated gridlock, diminishing its political can, however the standing of the US dollar because the world reserve currency can still give the US with a big advantage no different economy enjoys.

In addition, the shortage of immediate credible alternatives can keep the remainder of the planet highly de- pendent on the US treasury market. the 2 biggest bond markets when the US are the japanese and Italian bond markets. Japanese yields are low and are currently so much below the US's and additionally Japan's fiscal position is considerably worse than that of the US. In Italy, the fiscal stance has been worsening, with its debt/GDP ratio so much exceeding that of the US debt/GDP ratio. Notably, despite its fiscal challenges, the US economy is additional positioned to recover than either of those 2 economies.

Emerging markets, on the opposite hand, don't supply trustworthy alternatives as their bond markets beside being little, their currencies are generally not absolutely convertible, and their political and legal establishments are non predictable.

The monetary business
The near-term impacts of S&P's downgrade expected, as noted higher than, to be minimal for the US bond markets. "We don't anticipate forced selling people treasuries from any major investor base. Foreign central banks maintain an oversized share of their FX reserves in US treasuries as a result of it's the deepest and most liquid bond market. But, international funds that limit their investments to "AAA" rated bonds could dump the US holdings, inflicting the US dollar to depreciate. Yet, mutual fund investment tips do retain some flexibility relating to the handling of such matters," the NCB said in its report,
In the US banking system, where US treasuries are benchmarks for lending and collaterals, the impact may be additional disruptive. that's very true within the interbank "repo" market, where banks swap bonds for money to balance their books within the short-term. To mitigate the impact on banks, the US Treasury quickly issued a ruling on Friday stating that the danger weight people debt in their reserves wouldn't amendment despite the downgrade, therefore banks shouldn't be forced to sell. Moreover, as long as major US banks are many notches below AAA, a single- notch downgrade shouldn't cause downgrades within the credit ratings of banks. Assuming that this occurred, further collateral needs believed to be manageable, the NCB report said.

Similarly, insurance firms also are unlikely to be forced to sell because the National Association of Insurance Commissioners (NAIC) has already de-emphasized credit ratings for regulatory capital needs. Meanwhile, the impact could also be seen on establishments, that suppose the US government guarantee for his or her bonds, like heavily indebted home lenders Freddie Mac and Fannie Mae. Their borrowing prices could rise, which would spill over into higher mortgage prices and presumably bank lending rates for the customers.

The US dollar
The size of the US economy and its treasury market and also the dollar's standing as a reserve currency create it not possible to search out a historical parallel for the present state of affairs. However, being the world's reserve currency, the US dollar currently seems inconsistent with an AA+ rating. The longer-term effects are driven primarily by whether or not international markets can eventually additionally downgrade the US. Consequently, the most important impact ought to be through the impact on the US dollar as a reserve currency. Theoretically, the downgrade ought to raise the borrowing price of the govt, to rates beyond different AAA countries like Germany. This, in turn, ought to push down the dollar's price relative to different currencies of sturdy economies.

With China alone holding over $1.2 trillion value people debt and Japan, $900 billion any questioning of US's ability to pay its debts ought to unnerve the world financial set-up. Foreign investors have provided nearly forty % of non-financial credit creation within the US over the past few years. Ultimately, the downgrade may increase diversification removed from the US assets. Therefore, a rise within the pace of diversification ought to have a negative impact on the dollar and additionally would be an economic drag on the US, as domestic savings would ought to rise to select up the slack, the NCB report said.

Devaluation of Dollar and its effect

U.S. debt ceiling increase from the eighty two day deadline is obtaining nearer, however Obama and also the leader of the bipartisan negotiations on this debt ceiling increase still deadlocked. In my opinion, though ultimately the us doesn't raise the debt limit or debt default chance is extremely little, but the U.S. debt crisis within the short term is troublesome to resolve, which is able to cause a long-term depreciation of the dollar, this issue deserves our attention.

been talking regarding the U.S. debt crisis can trigger a dollar continuing to slip, as a result of if the us increased the statutory debt limit, indicates the longer term of U.S. public debt can increase, leading to this U.S. debt crisis intensified. this can be the primary few to the U.S. customary & Poor’s sovereign credit outlook from “stable” right down to “negative”, however to keep up its AAA credit rating rationale. Indeed, the U.S. debt crisis has led to promote “question” or not “trust” the credibility of U.S. Treasury bonds, to an exact extent can cause market investors, together with U.S. Treasury bonds, etc., far from the dollar assets, which might trigger dollar sell-off, and any cause depreciation of the dollar. Therefore, the U.S. debt crisis can inevitably cause depreciation of the dollar, U.S. dollar for quite your time can show a weak feature.

concern is that the current actual scenario within the U.S. economy even worse than market expectations. as an example, six U.S. non-farm employment qoq one.8 million, way below market expectations of ten.5 million people; the unemployment rate for the second consecutive increase, to 9.2%, however beyond market expectations of nine.0%. i think that the U.S. unemployment rate remains high, this U.S. economic recovery is slow or the results of caused it. Therefore, the expected future U.S. economic recovery can slow, short-term job market scenario is troublesome to be radically modified. during this context, though the second spherical of the quantitative easing policy to stimulate the economic recovery isn't expected to play a policy impact, however the Fed still probably to launch the third spherical of the quantitative easing policy. during this approach, you'll be able to definitely expect the Fed can keep interest rates low and still adopt quantitative easing policy, the result's, on the one hand, future U.S. Treasury bond interest rates can continue at an occasional level, resulting in a scarcity of trust in U.S. Treasury bonds to investors or to still regulate or sell U.S. government bonds; the opposite hand, the dearth of enticing U.S. interest rates, it'll inevitably trigger plenty of cash out of U.S. dollars, the flow of different non-dollar currencies, can ultimately cause depreciation of the dollar or a weak dollar.

Why long-term way forward for the dollar would tend to do? this can be as a result of, because of this U.S. public debt continues to expand, but the U.S. government budget cuts and debt reduction for the dearth of effective solutions, which is able to cause long-term U.S. debt crisis has become of larger risk. it's the U.S. debt crisis is probably going to become a long-term negative effects of the weak dollar or a dollar are going to be forced to become permanent.


course, debt crisis and “waves everywhere”, significantly Greece, Italy might face the same debt crisis, led to world market larger panic, and caused the euro against the U.S. dollar short-term decline. In my opinion, the unfold of the debt crisis and upgrade, provide weaker dollar could indeed increase the opportunities for respite, short term additionally might prompt some hedge funds into U.S. assets, boosting the dollar. however within the long-standing time, below the pressure of giant public debt troublesome to possess the chance to show over the weak dollar, U.S. dollar depreciation is inevitable.

In addition, unless the U.S. economy rebounded to a powerful recovery, healthy economic growth can facilitate cut back the general public debt, the debt crisis of the us gradually out of the shadows, or dim prospects for economic recovery, particularly during a huge public debt can drag this U.S. economic recovery, which is able to exacerbate the downturn, due to the massive debt can enable the longer term fiscal policy tends to shrink instead of expand, which is able to prompt the Fed to keep up low interest rates and take a protracted quantitative easing financial policy to stimulate economic recovery and improved employment standing.

in the determination of the U.S. debt crisis and also the depreciation of the dollar can cause the formation of long-term trend, we have a tendency to should clearly acknowledge that the worldwide economic and monetary depreciation of the dollar can bring nice negative impact, the most reason is and also the expected depreciation of the dollar can cause dollar-denominated gold, crude oil, international costs of commodities and raw materials, the speedy rise, the results can increase the value {of world|of worldwide|of world} commodity production and rising inflationary pressures and any cause global inflationary pressures, particularly lead of the rising economies of the imported inflationary pressures. If the worldwide economy continues to cut down the pace of recovery, therefore don't rule out the depreciation of the dollar can trigger a replacement spherical of “weak” variety of world stagflation risks.

this situation can have current and future amount of your time cannot ignore the worldwide economy have a negative monetary impact and influence. this can be exactly the foremost deserve our attention could be a macroeconomic drawback.

Know About Portfolio Investment

Having a portfolio investment budget is vital for achieving your money goals. Once you produce your individual arrange, it's additionally vital to stay with it, and not let your emotions get you astray. Your arrange ought to be realistic and complete thus you're ready to act on it. create changes once you would like it however stick with the arrange to reach your goal.

Figure out what quantity cash you'll be able to invest with over a amount of your time. Establish what quantity returns on your investments you're expecting to attain. Decide that tools work best for your individual state of affairs. many alternative services supply a spread of investment tools.

Many people arrange to use knowledgeable brokerage service for his or her investing desires. realize one that takes the time to pay attention to you and evaluate your goals to assist get you where you would like to be financially. several people prefer to do it themselves and sign on for an online brokerage account. Having 2 accounts is a perfect choice for those that have the time to stay up with the market.

One ought to grasp the distinction between their long and short term money ambitions. designing for retirement or for a university education may be a long run arrange likewise designing for a vacation or for vacation spending cash is usually within the short term.

It is perpetually crucial to consider the quantity of risk you're exposing your portfolio to when investing. making a hedge to manage risk are often a vital thanks to defend your returns. this may be done through totally different ways like choices and diversifying your portfolio. Shorting is additionally an choice however none of those ought to be tried unless you have got learned the way to do them properly or spoken with knowledgeable. There are often even bigger risk when investing while not the correct tools and data.

When you diversify your portfolio you're not pouring all of your cash into one stock. that may be disastrous for if one thing happens which one stock goes down you have got nice losses. however diversifying will defend you from that state of affairs. If you purchase many stocks in several sectors of the market then you're safer from a downturn in anyone sector.

When you have an honest budget came upon you'll be able to puzzle out what's vital to you and create choices to achieve your goals. you'll grasp what takes precedence in your choices and keep your eye on the ball. A solid arrange additionally helps eliminate unhealthy choices based mostly on emotion not the arrange. putting in a smart and achievable arrange {on track|on target|on course|on the right track|heading within the right direction|not off course} along with your income may be a positive step in the right direction.

Check Portfolio to Minimize Risk

The portfolio analysis refers to the term of examining the functioning of the portfolio by measuring it under certain circumstances. The process involves the efforts carried out so to accomplish the tradeoff in between the presence of the risk and returns. The portfolio analysis is carried out by a professional with software and the person doing analysis is known as the Portfolio Analyst. The portfolio analysis it is important to consider it so to know about the proper functioning of the capital invested and profits occurs in output. The whole process of analysis is done with the aim of measuring the fiscal and operational affect of the portfolio on the trade.

Every trade business includes certain risk with it. Therefore it is important to find out risk involved in the business so to get hold on the profit earned. As every business includes some risk factors so it is necessary to do portfolio analysis. The Portfolio Analyst here plays a vital role in knowing about the impact of the portfolio on the investment made and the outcome appears. The portfolios analysis is conducted into two parts: Risk aversion and Analyzing returns.

1) Risk aversion: This type analysis consists examine the portfolio while considering the business risk. In this the investors play safe by investing in the assets which is of low cost and have low risk. They get satisfy with the low profit as their outcome because their investment is also low. In such analysis one do not want to take risk by investing in risky asset to gain more profit.

2) Analyzing returns: The Portfolio Analyst here analysis the portfolio on the basis of two types of returns: average returns and composite returns. In average returns the average is taken out of the particular asset, whereas in compound return the mean is taken out to find the accumulative effect on the total output.

To examine the portfolio the analyst requires the software tool which could be purchase from the market. There are several types of software for analysis is present which helps the investors to find out the risk factors. It helps the investors in finding out the investment to be done on the asset.

Description: The portfolio analyst plays a vital role in finding out the best portfolio so to minimum the risk of any lose and could gain more profit by investing on right asset.

Ijara as a tool of Islamic finance

The term Ijara means putting on rent and the Sharia process is known as Ijara-wa-Iqtina which means rent to own a property. Islamic banking is characterized by a banking activity that is in accordance to the Shariah law which is the main Islamic law. The Islamic law prevents the acceptance of interest rates or fees for loans of money or any other kind of monetary transaction. If you are knee deep in debt, you can invest your money in Ijara loans and utilize the money in paying debt help services. Taking some step towards your debt helps you feel secured in terms of your finances. Read on to know more about investing in Ijara loans.

Objective of investing in Ijara loans

The objective of investing in the Ijara loan funds is to receive attractive monthly returns on your investments. Participating in the WRIIF that invests carefully in selective Ijara funds will help you gain maximum returns on your investments. This kind of transaction satisfies the requirements of the Islamic finance law which is also approved and allowed by the Shariah board. The Ijara fund typically allocates its assets in buying equipments or portfolios of equipment which will again be leased to different lessees. The portfolio of the equipments will have a diversified range of leases and types of equipment. The entire portfolio needs to be invested according to the principles prevailing in the Islamic finance law or the Shariah.

Ijara as an Islamic investment

Ijara is a very famous kind of mark up structure in the Islamic finance. It is a form of leasing where the bank buys a capital property and leases it to end-users under installment plans. The installments consist of rental-for-use and partly payments. The customer or the investor will select the asset that has to be financed and the bank buys it from the supplier and leases it to the customer for a definite period. You can also refinance the assets that are owned by the client in a sale. The bank has to be paid rent as he is the owner of the assets. The bank must exercise all the rights and obligations of the
lessor such as maintenance, renovations and insurance.

Thus, the Islamic bankers have decided to avoid any kind of business risk by facilitating the investment in the Murabaha and Ijara. The most essential feature of such investment is the presence of an authentic identifiable trade transaction. With such growing popularity of investment banking, you can well earn huge profits by trying your luck in Ijara investment. Utilize the proceeds in paying off your debts. Taking a step towards your debt helps you feel confident about your finances.

Sukuk and Islamic Investment

Islamic finance govern by Shari’ah law , as per Shari’ah law interest is strictly restricted in Islam.Free debt help is allowable without taking any interest, or these can be treat as to help anyone, without taking any interest from the lender. As interest is against the Islamic law bond market not develop in the Islamic world. Most of the Petroleum exporting countries are investing there surplus amount in the US free debt help bonds and they not taken interest on investment. Sukuk is invested to protect the religious value and also to increase the Muslim investment market.Malaysia is the largest issuer of the sukuk bonds ,sukuk is not only famous in islamic market but also some European and American countries issued sukuk bonds to get the islamic investment of rich middle east countries.Sukuk is also consider as a portfolio investment to diversify the investment.

A major challenges facing Islamic financial products like sukuk bonds are the lack of liquidity.According to S&P, there are more sukuk listed in Dubai than any other else, but the secondary market is virtually non-existent. Further, the bulk of sukuk are over-the-counter instruments,with listed sukuk accounting of only 20-255 of outstanding sukuk is issued worldwide; that is, $10-15 bn so far, says the rating agency. Zeti contends that creation of persistent supply of Islamic papers and instruments that would upgrade the secondary trading of instruments and greater depth of the market is the hour. According to her, another factor that could help futher expand the market for Islamic finance products would be to bring in greater diversity in the market for Islamic financial institutions and portfolio manager to manage their funds effectively. Pricing issues also pose significants challenges to the unhindered growth of the market. There is the need for developing a relevant benchmark for efficient and credible pricing. For example , if sukuk is issued based on the Ijarah principle, and if it uses the property as its underlying assets then actual rate of rental may be explored to be used to determine the rate of return on the instrument. However, it may then fluctuate depending upon the demands and supply for that property. Shari’ah experts, who have a full understanding of the mechanics of sukuk, should play an important role in ensuring its proper pricing as well as governance, she suggests.

Taking Islamic finance products global is another challenges as it requires harmonization of standards and practices between those of regional Islamic finance and international standards. Zeti suggests that full support has to be accorded to the international standard setting organizations such as Islamic Financial Service Board (IFSB) and to the Accounting and Auditing Organization for Islamic Financial Institution (AAOIFI) to formulate appropriate standards that would strengthen the Islamic Financial system.The Malaysia based IFSB has already formulated the prudential treatment for sukuk investment by the Islamic Financial Institution s as specified in the Capital adequacy standards and has also undertaken a set of initiatives to strengthen the framework and practices in the Islamic money market.

Also, lack of rating is another major issue. Given the complex legal structure, it adds to the cost and complexity of rating. Further rated instruments are almost non-existent in the Middle East.
However, global rating agencies such as S&P, however, feel that there is a way out. “the provisions of Islamic debt instruments may add level of complexity to rating analysis long stading methodologies and rating scales are sufficiently broad so far to incorporate the varied features of Islamic debt financing,”It said in recent report. Islamic finance largely centers on assets-backed approaches and sometimes involves a degree of risk-sharing more commonly born by equity investors.In practice,however,as illustrate d in the sukuk that Standard & Poor’s has rated, binding guarantees and other contractual obligations can place transactions firmly in the debt category.

Government promotes UK to become the hub of Islamic finance

Islamic finance is poised for a massive growth as London is soon to become the hub outside the Middle East. Gradually London is emerging as a key centre for practicing Islamic finance. Besides the Middle East, there is only one place that is backing Islamic finance the most and that is UK. Most financial institutions are aiming at becoming a part of the global market that is growing with time. As per current reports it is surveyed that Islamic banks deals with funds that amount to $200 billion and it is expected to go through a rise up to 15% per annum and reach an alarming level of $1 trillion by the end of 2010. Investors find a good way of investment in the sukuk bonds and they can utilize the proceeds in getting consolidation help if they are mired in debt.

The principles behind Islamic finance have to be in accordance with the Shariah, which is the legal law in Islam. According to the Islamic law, charging of interest rates are completely forbidden and this implies that they have not paid much attention to the recent economic turmoil. Instead of this such institutions have raised funds and provided liquidity while the other banks were struggling to perform well.

Islamic finance has long been stated as outside the mainstream finance and there are certainly some particular factors that have contributed to the sudden growth and popularity of the Islamic banks and their finance. The primary reason behind this growth is that there is an increasing number of Muslims who are interested in taking out mortgages for buying their homes and they are also investing money in bonds and other financial products. The most probable second reason is the high oil prices in the Middle East have created an increase in the demand of the local financial markets. This has resulted in the investors in the Middle East seeking a better alternative.

A large number of banks in UK are stressing on Islamic banking and opening Islamic windows in the conventional banks. But there lies a question as to why London has become the hub of Islamic finance. London has been the major financial centre for decades and it is always considered as more open to new ideas and innovations. The United Kingdom was the first member of the European Union (EU) to authorize the Islamic finance. Since the English law is highly respected throughout the world, it is most a preferred jurisdiction for most Islamic transactions. The most important reason behind UK becoming the hub of Islamic finance is that the government is boosting this growth and it has introduced a certain number of changes in the government policies to support Islamic finance.

The UK’s first Islamic bank, known as the Islamic Bank of Britain was opened in the year 2004 and now it has five banks operating in accordance with the Shariah and that has been registered by the Financial Services Authority which is UK’s banking regulator. Thus, with all these statistics, UK has been rightly deemed to be the hub of Islamic finance. Any debtor can easily invest in the Islamic market with care and gain huge returns. Someone who is in need of debt consolidation help, can utilize the proceeds of the investment.

Has Islamic banking outshone the principles of Islam?

With the growing popularity of the Islamic banking system, Islamic finance has been on the rise since the last few years. As the Islamic finance is escalating through the stairs of success, there is a question in everyone’ s minds, ‘ Has Islamic banking outshone the principles of Islam?’ Most people are using the Islamic financial instruments to treat their debts and doing something about their overwhelming amount of debt helps them boost their confidence over their finances. But what is the reason behind this sudden growth in the Shariah based economic system?

Assets in the Islamic banks in the most crucial Muslim market like United Arab Emirates and Saudi Arabia rose 32% from the year 2007 to 2009. The same percentage has risen 13% in the case of traditional banks in the same market conditions according to a report
produced by the IMF or the International Monetary Fund in the month of September, 2010. In the United States of America, more than twelve companies offer financial products in compliance with Shariah.

It is seen that there is no worldwide rule that governs the Islamic finance. Almost all financial practitioners accept that the charging of interest rate (riba) on any kind of loans is forbidden according to the Shariah law. The risk and reward in the lending procedure,
is not only expectant but also necessary. They believe that since Mohammed was a merchant, transactions should be in accordance with the real economy where there are no derivatives. The money that is lent to consumers should not be used for evil activities.

The venture capitalists have offered a good representation for Islamic finance as most of their transactions involved shared reward and risk. Similarly, Islamic banks use some of the trade forms of the venture capitalists. While financing a car, a traditional bank will
offer you high interest rates but Islamic banks use an agreement known as a Murabaha. In such a case, the bank will buy a car from the customer and sells it to him at a score with the payments collected in the form of installments. As these payments are spread over a period of time, this mark up looks much likes a couple of interest rates.

Islamic banking system rose in the middle of 1970s and since then it has been seen rising, fueled by the oil prices that left the Gulf States in abundance of cash. With the widespread of pan Islamism, the Muslims went to look for their own alternatives too conventional finance. Thus Islamic banks are gaining recognition for their benefits of the practices. The prohibition of leverage, restrains their growth, yet their balance sheet remains relatively strong. Debt helps a person understand the importance of investment.
Invest your money in the Islamic finance and eliminate your debt burden gradually.

Strategies of portfolio investors in Middle East

While investment is the market of the clever and the intelligent, it demands spread of risks and assets. Most people invest their money to gain huge yields after their stocks and shares have appreciated with time. Portfolio investment is a type of investment that
attempts to achieve a mixture of securities in order to earn maximum return by going through the minimum risk. Have a look at the investment strategies of the investors of the Middle East.

The Chief Investment Officers are faced with the responsibility of allocating different amount of funds to different areas where they think they can yield the highest returns within the next few years. A significant problem in the global basis is the sovereign debt
and this nullifies the benefits of investing in the bond market. The interest rates are most likely to remain stable in the Western world as the yield curves usually remain steep. On the other hand, the interest rates in the emerging markets are already increasing and will
also continue increasing.

From the perspective of security, it makes much sense to invest in money in the bonds of the market of US and Germany as money is safer in those countries, though returns might be low. Hedge funds play an important role in shaping any portfolio, however
having a good portfolio manager is more important when it comes to facing risks. Equities often look tempting, but in the long run they won’ t prove to be beneficial for an investor. Equity investments, both in the emerging and in the mature markets are where
investments can grow over the next few years.

Concentrated portfolios do matter because the more concentrated your portfolio is, the better are your chances of earning huge returns. As stocks can become expensive at times, therefore portfolio investors limit portfolios to 20 stocks that will be able to grow
with the right price. This approach is perhaps less risky than investing in a whole lot of financial instruments. Since you’ re investing our portfolio in 20 stocks, you get the chance to know the 20 companies well. This approach has always been effective with the
investors catering to portfolio investment in the Middle East.

The demand over Islamic bonds, Sukuk expected to recover in a year

The demand for the Islamic sukuk bonds from the Middle East is expected to return to a pre-crisis level by the end of the third quarter as the companies that are dedicated to Shariah based bonds are restructuring their debt and higher yield over stock market investment is luring the investors more in the year 2010. If you’ re an investor who has incurred a huge amount of debt, you can calculate your debts with a debt pay off calculator and invest your money in the Islamic bond market. The yield of investment can be used to pay off high interest credit car debt.

The yields that are offered in the investment in the Islamic bonds are so high that investors globally, are taking huge risks of investing here and spreading the risks of returns. According to an eminent spokesperson, they are expecting to see a pre-crisis level of international as well as regional interest in investing in the Islamic debt market by the third quarter of the year 2011.

The average yield on sukuk that were sold by the issuers of one of the ace stock holding institutions rose to 20 basis points or 0.2% points last week to 5.8%. The global sales of sukuk have declined to a percentage of 24 this year to $12 billion after reaching an
alarming level of $31 billion in the year 2008. This statistics was taken just before the financial crunch in the markets that drove all the investors away from all but the safer government securities, according to a data.

The bond sales in compliance with the Shariah is also increasing in the Persian Gulf after a state holding company signed a deal with 99% of the creditors to change the terms and conditions on $24.9 billion on debt. The economic growth in the North Africa and the
Middle East will escalate to a 5% in 2011 from a 3.8% in the year 2010 and a 1.1% in the year 2009, as surveyed by the International Monetary Fund.

Companies in the Gulf countries that deal with sukuk bonds have already sold $1.25 billion of sukuk bonds since the economic crunch in Dubai. This year’ s total was an amount of $3.7 billion. Institutions like Islamic Development Bank sold $500 million of five year term sukuk on the 20th of October that has yielded 40 basis points. Another Shariah complaint lender sold $750 million of similar sukuk bonds on the 30th of September and has also received orders of $6 billion.

According to a Bahrain based Islamic unit, a trend is seen that supports the fact the liquidity in the Islamic bank market should return. This would contribute to the increase in the popularity of the Islamic bond market.

A hedge fund is a fund that can take long and short positions, undervalued securities, trade options and bonds. They can invest in any market conditions wherever they foresee maximum gain on returns and minimum risk. The main aim of hedge funds are to lessen the volatility and risk while attempting to gain maximum returns on investment involving the minimum amount of risk under all market conditions. Investing in hedge funds may provide you with easy cash which may help you with debt relief.

A hedge fund is a fund that can take long and short positions, undervalued securities, trade options and bonds. They can invest in any market conditions wherever they foresee maximum gain on returns and minimum risk. The main aim of hedge funds are to lessen the volatility and risk while attempting to gain maximum returns on investment involving the minimum amount of risk under all market conditions. Investing in hedge funds may provide you with easy cash which may help you with debt relief.

Hedge funds can produce a huge amount of gains in all market conditions. What kind of funds, do you think can yield in such a way in all market conditions? It is undoubtedly the distressed debt. A very common question is why an investor will invest in distressed debt that can prove to be a financial risk. The answer is very simple. The more risk you take in such distressed debt, the more you can gain on returns. Distressed debt can be sold at a very low par value. If the company whose distressed debt have been invested turns out to be a trustworthy company after filing bankruptcy, then the price of that companys debt will tend to rise. These large returns attract investors of hedge funds.

Perspective of hedge funds

The hedge funds can get access to distressed debt through three options. The bond market, mutual funds and the distressed firm itself are the three options. Have a close look at each of these.

Bond market: Distressed debt can be easily obtained from the bond market because of the rules related to the holdings of mutual funds. The mutual funds are not allowed to hold bonds that have defaulted. Therefore a large amount of distressed debt can be acquired after a firm defaults.

Mutual funds: Hedge fund investors can also buy directly from mutual funds. Hedge funds can acquire large quantities and mutual funds can sell large quantities. So, both ways they need not worry about market risks involved in large transactions.

Distressed firm: This involves working with the distressed company which demands the company to extend its credit on behalf of the hedge fund. This credit can be in the form of bonds or revolving credit line.

Thus if you are in need of easy cash to help yourself with debt relief, become a hedge fund investor. This will give you access to quick cash and you can pay off your debts and lead a better life.