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Managing Commodity Trading Risks in Islamic Financial Transactions

In Malaysia, there has been an increasing use of commodities to facilitate Islamic financial transactions. Commodities alone account for more than half (2019: 56%) of the underlying assets in such transactions. This exposes IFIs to risks associated with commodities such as movements in crop yield or production and prices. This article explores the main risks arising in commodity trading underpinning Islamic financial transactions and the risk management practices adopted by IFIs in mitigating them.

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