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M. Umer Chapra

reverse flow of funds as soon as there was a negative shock. Shocks can result from a number of factors, including natural calamities and unanticipated declines in the economies of borrowing countries due to changes in interest rates or relative export and import prices. Such shocks lead to a decline in confidence in the borrowing country’s ability to honour its liabilities in foreign exchange. The rapid outflow of foreign exchange, which would not have been possible in the case of equity financing or even medium- and longterm debt, led to a sharp fall in exchange rates

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Munawar Iqbal and David T. Llewellyn

9/11/01 3:08 pm Page 4 4 Islamic banking and finance: new perspectives on profit-sharing and risk price of finance needs to include an allowance for the risks involved. Similarly, the rates of return to the suppliers of finance should also reflect the risks taken. In conventional systems a major route for this is through the rate of interest, with risks of alternative projects or loans being reflected in different risk premia incorporated in interest rates on different loans. Clearly, this route is not relevant in Islamic finance, which means that alternative

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Sami Ibrahim Al-Suwailem

may not regret doing, had the desired outcome not materialized. Obviously, it includes natural and logical causes of the desired outcome. It follows that adopting proper causes is an integral part of ethical behaviour. This approach integrates ethics into economics without attacking utility-maximizing or pursuing self-interest (see Sen, 1988). Improper means need not be more effective in terms of causality than proper causes. To the contrary, there is a reason to believe that causality of the former is less effective than that of the latter. For example, an improper