Abdur Rashid Mirza

University of Lahore School of Accountancy and Finance Financial Engineering (Product and Services of Islamic Financial Institution)
Lecture no.1
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Definition of Finance + Engineering

Definition of Finance

as

A branch of economics concerned with

allocation as well management, acquisition

and Simply, finance deals with matters related to money and the markets.

resource resource investment.

Definition of Engineering Engineering is basically the planning stage of manufacturing something.

Definition of Financial Engineering

Financial engineering can be defined as the design, development, and the implementation of innovative financial instruments and processes, and the formulation of creative solutions to problems in finance.
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What is Financial Engineering?

This is done in order to maximize profits

using different combinations of equity, futures, options, fixed income

(Bonds), swaps (exchange).
They apply theoretical finance and computer modeling skills to make pricing, trading and portfolio management decisions.

Computer Modeling

Constructing (mathematical and graphical) representation of economic

and engineering manufacturing with the help of computer system.

Financial Engineers are prepared for careers in:

Investment Banking

Corporate Strategic Planning Risk Management

Primary and Derivatives Securities Valuation

Financial Information Systems Management Portfolio Management Security Trading

Need for Financial Engineering in Islamic Finance Financial are becoming more and more sophisticated, and competitive. In order to

markets

achievement the fast changing market environment and face increasing competition, financial
engineering imperative. and innovation is
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Scope for Financial Engineering in Islamic Finance

Financial needs of both individuals and businesses have changed. Engineers in modern finance have designed several new ways such as mortgages, options, derivatives etc., to meet those needs.
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Derivative
Derivative instruments Contracts such as options and futures whose price is derived from the price of the original financial asset.

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Scope for Financial Engineering in Islamic Finance

The scope for financial engineering, and for that matter for innovations in other fields, is quite wide. It is important that the task is given over to those experts who know the needs and facts of the trade.
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The Four Cs of Islamic Financial Engineering

The Golden Principle of Free Choice

and the discussion of the few prohibitions, we can summarize the

guidelines for financial engineering in what we call Four Cs of Islamic Financial Engineering. These are:
Consciousness Clarity Capability Commitment

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Consciousness
That the parties should consciously and willingly agree on the conditions of contract without pressure. An implication of this is that any agreement made in the state of unconsciousness is not valid.
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Clarity
fully aware of all the implications of the conditions laid down in
That the parties are a contract. Any ambiguity will make the agreement

invalid. An implication is to minimize

information.

uneven

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Capability
That the parties are reasonably certain that they are

capable of complying with all conditions of the contract. An implication of this is that sale of any
goods (or services) which are not

owned and

possessed by the seller

contract is not valid.

at the time of the

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Commitment
That the parties intend and are committed to respect the terms of a contract both in letter and spirit.

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Author Introduction
Abdur Rasid Mirza, Economic and Financial Analyst Associated Consulting Engineers ACE (Pvt.) Ltd. Faculty Member of University of Lahore, School of Lahore, School of Accountancy and Finance Research Scholar (Islamic Banking and Finance) Mobile no. 0300-4210261 Email Address: yourarm1972@hotmail.com Email address: yourarm@yahoo.com
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