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4. Financial instruments
A. Strategy in using financial
A.
instruments
By its nature, the Group’s activities
are principally related to the use
of financial instruments. The
Group accepts investments from
customers at varying rates of return
and for various periods and seeks to
earn above average profits by
investing these funds in high quality
assets. The Group seeks to increase
these margins by consolidating
short-term funds and investing
for longer periods at higher
return potential whilst maintaining
sufficient liquidity to meet all claims
that might fall due.
The Group also seeks to raise its
profit margins by obtaining above
average margins, net of provisions,
through transactions with its
commercial and retail customers.
Such exposures involve not just
on-balance sheet Islamic financings
but the Group also enters into
Islamically acceptable guarantees
and other commitments such as
letters of credit and performance
and other bonds.
The Group also trades in financial
instruments where it takes positions
in traded and over the counter
instruments including derivatives to
take advantage of short-term market
movements in the equity and bond
markets and in currency and profit
rates. The individual subsidiary’s
boards place trading limits on the
level of exposure that can be taken
in relation to both overnight and
intra-day market positions. With
the exception of specific hedging
arrangements, foreign exchange
and profit rate exposures associated
with these derivatives are
normally offset by entering into
counterbalancing positions, thereby
controlling the variability in the net
cash amounts required to liquidate
market positions.
The Group utilises the following
derivative instruments for both
hedging and non-hedging purposes.
(i) Currency forwards represent
commitments to purchase foreign
and domestic currency, including
undelivered spot transactions;
(ii) equity futures are contractual
obligations to receive or sell shares
on a future date at a specified
price established in an organised
financial market; and (iii) equity
options are contractual agreements
under which the seller (writer)
grants the purchaser (holder) the
right, but not the obligation, either to
buy (a call option) or sell (a put
option) at or by a set date or during
a set period, a specific amount of
shares at a predetermined price.
In consideration for the assumption
of the risk, the seller receives a
premium from the purchaser.
Options may be either exchange-
traded or negotiated between the
Group and a customer (over the
counter).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of US dollars)
31
Dar Al-Maal Al-Islami Trust
Annual Report 2011
The Group’s debt-to-equity ratios for the given years were as follows:
2011
2010
Total debt
1,861,224 1,942,978
Less: cash and cash equivalents
(785,042)
(792,395)
Net debt
1,076,182 1,150,583
Total equity
461,512
524,385
Debt-to-equity ratio
233%
219%