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Islamic hedging for pilgrimage funds: case of Indonesia

Islamic hedging for pilgrimage funds: case of Indonesia The demand for Saudi Arabian real (SAR) is very high in the pilgrimage (hajj) season while the authority, unfortunately, does not hedge the hajj funds. As such, the hajj funds are potentially exposed to exchange rate risk, which can impact the value of hajj funds and generate extra cost to the pilgrims. The purpose of this paper is to conduct simulations of Islamic hedging for pilgrimage funds to: mitigate and minimize exchange rate risk, identify and recommend the ideal time, amount and tenors of Islamic hedging for hajj funds, estimate cost saving by pursuing Islamic hedging and propose technical and general recommendations for the authority.Design/methodology/approachForward transaction mechanism is adopted to compute Islamic forward between SAR and Rupiah (Indonesian currency) or IDR. Findings – based on simulations, the paper finds that: the longer the Islamic hedging tenors, the better is the result of Islamic hedging, the decreasing of IDR/USD is the right time to hedge the hajj funds and, on the other hand, the IDR/SAR appreciation is not the right time to hedge the hajj funds.FindingsBased on simulations, the paper finds that: the longer the Islamic hedging tenors, the better is the result of Islamic hedging, the decreasing of IDR/USD is the right time to hedge the hajj funds and, on the other hand, the IDR/SAR appreciation is not the right time to hedge the hajj funds.Research limitations/implicationsThe research suggests the authority to (and not to) hedge the hajj fund, depending on economic conditions and market indicators. Even though the assessment is for the Indonesian case, other countries maintaining hajj funds might also learn from this paper.Originality/valueTo the best of author’s knowledge, this is the first paper in Indonesia that attempts to simulate the optimal hedging of hajj funds. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Qualitative Research in Financial Markets Emerald Publishing

Islamic hedging for pilgrimage funds: case of Indonesia

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1755-4179
DOI
10.1108/qrfm-11-2017-0101
Publisher site
See Article on Publisher Site

Abstract

The demand for Saudi Arabian real (SAR) is very high in the pilgrimage (hajj) season while the authority, unfortunately, does not hedge the hajj funds. As such, the hajj funds are potentially exposed to exchange rate risk, which can impact the value of hajj funds and generate extra cost to the pilgrims. The purpose of this paper is to conduct simulations of Islamic hedging for pilgrimage funds to: mitigate and minimize exchange rate risk, identify and recommend the ideal time, amount and tenors of Islamic hedging for hajj funds, estimate cost saving by pursuing Islamic hedging and propose technical and general recommendations for the authority.Design/methodology/approachForward transaction mechanism is adopted to compute Islamic forward between SAR and Rupiah (Indonesian currency) or IDR. Findings – based on simulations, the paper finds that: the longer the Islamic hedging tenors, the better is the result of Islamic hedging, the decreasing of IDR/USD is the right time to hedge the hajj funds and, on the other hand, the IDR/SAR appreciation is not the right time to hedge the hajj funds.FindingsBased on simulations, the paper finds that: the longer the Islamic hedging tenors, the better is the result of Islamic hedging, the decreasing of IDR/USD is the right time to hedge the hajj funds and, on the other hand, the IDR/SAR appreciation is not the right time to hedge the hajj funds.Research limitations/implicationsThe research suggests the authority to (and not to) hedge the hajj fund, depending on economic conditions and market indicators. Even though the assessment is for the Indonesian case, other countries maintaining hajj funds might also learn from this paper.Originality/valueTo the best of author’s knowledge, this is the first paper in Indonesia that attempts to simulate the optimal hedging of hajj funds.

Journal

Qualitative Research in Financial MarketsEmerald Publishing

Published: Aug 13, 2019

Keywords: Hajj funds; Islamic hedging; Rupiah; G11; G14

References