A shari’ah-compliant equivalent (salam/ ba’i al-salam/ bay’ al-salam) to conventional forward contract. It constitutes a sale (ba’i/ bay‘) whereby a seller is obliged to supply a specific good to a buyer at a future date, and for a price paid in advance (known as ras-mal al-salam), i.e., at the contract date. For example, if the current price of wheat is 0.5 dinars per kilo, while the expected forward price is 0.7 dinars, the salam price, for a salam period of 12 months, might be 0.6 dinars. In which case, the total salam price (capital of salam) is:
Total salam price = salam price (per unit) * quantity
If quantity is 10 tons, then:
Total salam price = 0.6 * 10,000 = 6,000 dinars
It is also known as forward delivery contract or sale by advance payment.
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