11 th International Conference on Islamic Economics and Finance 11 – 13 October 2016 | Kuala Lumpur, Malaysia 1 FOREIGN CURRENCY EXCHANGE TRANSACTIONS – AN ANALYSIS OF THE SYARIAH REQUIREMENTS Mohd Nasiruddin bin Mohd Kamaruddin Chief Operating Officer for Standard Chartered Saadiq Berhad mohamed.macho@gmail.com Abstract Al Quran outlines clearly the prohibition of riba. Al Hadith specifically guides us how to avoid riba in foreign exchange transactions by regulating that exchanges in foreign currencies must fulfil the requirement of “hand to hand”. This paper will look at the requirements for complying with Shariah in international foreign currency markets based on the standard practices set by industry bodies regulating such transactions. It will first examine the criteria for spot transactions in international foreign currency market. It will also examine the permissibility of some of the more exotic structures for foreign exchange transactions which include non deliverable foreign exchange contract as well as foreign exchange derivative products. This paper hopes to outline clearly the mechanics of these structures to give Syariah Advisers a clear understanding of the structures with the hope of allowing them to make better informed decisions on the subject. Keywords. Definition of riba, foreign currency exchange spot, medium of exchange 1 Introduction The application of the Shariah requirement for a “hand to hand” exchange in foreign currency transactions does not normally impose a problem when we are exchanging foreign currency at the cash counters. Travellers requiring foreign currencies for their foreign trips can easily do this at the airports, large tourist complexes and etc. In fact, “hand to hand” or spot transactions have been the only mode of transactions accepted by moneychangers worldwide until recently when some moneychangers began to accept credit cards in exchange for foreign currencies. However, the above Shariah requirements for spot foreign currency exchange transactions has been a contentious issue when it comes to spot foreign currency exchange transactions conducted over the international foreign currency markets due to the settlement standards for such transactions which is set at T + 2 (value spot or settlement to be done on a date equivalent to; transaction date + two business days in the country of the currency origin).