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An analysis of Islamic banks' exposure to rate of return risk

Zainol, Zairy and Kassim, Salina (2010) An analysis of Islamic banks' exposure to rate of return risk. Journal of Economic Cooperation and Development, 31 (1). pp. 59-84. ISSN 1308-7800

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The objective of this study is to analyze the dynamic effects of interest rate changes on the rate of return of Islamic banks and the amount of deposits in the conventional and Islamic banks. In analyzing the potential rate of return risk in the Islamic banks and interest rate risk in the conventional banks, for the Islamic banks, the 3-month Islamic deposit rate of return and total Islamic deposit are considered, while for the conventional banks, the 3-month fixed deposit interest rate and total conventional deposits are considered. Using data covering the period from January 1997 to October 2008, the study applies the cointegration analysis, bi-variate Granger causality test, Impulse Response Function (IRF) and Variance Decomposition (VDC) analysis based on the Vector Auto-regression (VAR) framework. The results of the study have important implications on the risk management practices of the Islamic banks in Malaysia. Several suggestions are put forward to mitigate the rate of return risk so as to ensure healthy growth of the Islamic banking institutions.

Item Type: Article (Journal)
Additional Information: 4600/11969
Uncontrolled Keywords: Islamic banks
Subjects: H Social Sciences > HG Finance > HG1501 Banking
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button): Kulliyyah of Economics and Management Sciences > Department of Economics
Depositing User: Prof. Dr. Salina Kassim
Date Deposited: 16 Feb 2012 12:41
Last Modified: 18 Apr 2012 15:56
URI: http://irep.iium.edu.my/id/eprint/11969

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