Relationship between Rate of Returnson Foreign Exchange Islamic and Conventional Deposits in Turkey

Abstract

The causal relationship between the rates of returnondeposits of Islamic banks and deposits of conventionalbanks in an economy with dual banking systems is a significant area of study in the literature.While studying thiscausal relationship, vast majority of the existing studiesconsider domestic currency deposits. In this paper instead ofdomestic currency deposits, I consider foreign exchange currency deposits.By employing Toda-Yamamoto causalityanalysis, a causality relationship for all the maturity groups is found,but not for the 12-months maturity.For dollaraccounts, the causality relationship between rate of returns of Islamic and Conventional banking is found to be twoway.For Euro accounts, this causality relationship is found to be one way,where the interest rate of conventional banksis Granger cause of profit share of Islamic banks.