Sale of Commodities in Organized Markets — practice questions

Correct answer: B. Clauses 3/1/1 to 3/1/4: Spot contracts are permitted provided the commodity exists and is owned by the seller, is ascertained so as to be distinguished from others (documents establishing these facts are sufficient proof), the contract contains no condition preventing the buyer from taking delivery and obliging him to accept a set-off for value, and the price is paid on a spot basis. Unstipulated delay in delivering an existing, ascertained commodity or in accepting the spot price does not affect validity, and market rules allow delivery within one or two days (Clause 2/2/1).

Correct answer: A. Clauses 3/2/2 and 3/2/3: Contracts in which both countervalues are deferred are not permitted, whether the commodity is a described liability with a deferred price (a Salam without prompt payment of capital, however named) or an ascertained commodity with stipulated deferral of both delivery and price. An Istisna’a contract, however, is valid even when the price is deferred (see Shari’ah Standard No. (11)). Clause 3/2/4 permits deferring one countervalue only, subject to the rules of deferred sale or Salam.

Correct answer: C. Clauses 2/2/3, 3/3, 5/1/1 and 5/1/2: Futures contracts produce their effects at a future date through liquidation, cash settlement or counter-contracts and rarely end in actual delivery; both countervalues are deferred and the price is the only variable element. It is not permitted according to the Shari’ah to undertake futures transactions, either by forming them or by trading in them. The Standard draws no exception for hedging or for contracts that happen to end in delivery.