Financial markets are becoming more complex, increasing demand for hedging instruments to mitigate foreign exchange (FX) risk exposures. Currency options are commonly used for effective hedging solutions in conventional finance. However, permissibility in Islamic finance remains widely debated among scholars because of prohibited elements, i.e., gharar (excessive uncertainty), riba (interest), and maysir (gambling). Among these three (3) elements, gharar is the most debated due to the lack of structured parameters to distinguish between gharar yasir (minor uncertainty) and gharar fahish (major uncertainty) in modern derivative contracts. The purpose of the study is to develop the Gharar Parameters Model (GPM) as a conceptual framework for identifying, classifying, measuring and mitigating Shariah non-compliance (SNC) risk in currency options. This study adopts a qualitative method in which classical fiqh literature, contemporary Islamic finance standards, regulatory resolutions and academic literature were extensively analysed. The proposed model provisions harmonise Shariah clarifications on currency options with regard to gharar and, in turn, support Islamic Financial Institutions (IFIs) in enhancing the Shariah governance ecosystem, product innovation framework and SNC risk management practices. Furthermore, the study provides theoretical foundations for future empirical validation and regulatory use in Islamic finance, as well as a linkage to Maqasid al-Shariah, particularly hifz al-mal (preservation of wealth) in the broader context of the Islamic economy.
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