International Payments & Cross-Border Transactions Flashcards
7 cards from real CPP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 International Payments & Cross-Border Transactions flashcards as text
What is a vostro account in the context of correspondent banking?
Answer: An account held by a foreign bank at a domestic bank, denominated in the domestic currency
A vostro account (from Latin for 'yours') is an account that a foreign bank holds at a domestic bank, denominated in the domestic currency, allowing the foreign bank to offer local currency services to its customers.
Which global initiative by the G20 aims to address the speed, cost, transparency, and access challenges of cross-border payments?
Answer: FSB Cross-Border Payments Roadmap
The FSB (Financial Stability Board) Cross-Border Payments Roadmap, endorsed by the G20, is the global initiative targeting improvements in the speed, cost, transparency, and access of cross-border payment systems.
What is the significance of a Legal Entity Identifier (LEI) in international financial transactions?
Answer: It provides a globally unique identifier for legal entities participating in financial transactions
An LEI (Legal Entity Identifier) is a 20-character alphanumeric code that uniquely identifies legal entities participating in financial transactions globally, improving transparency and risk management.
In the context of cross-border payments, what is 'de-risking' by correspondent banks?
Answer: The practice of banks terminating or restricting relationships with higher-risk customers or regions to reduce compliance burden
De-risking refers to the practice of banks withdrawing from correspondent banking relationships with higher-risk customers, countries, or sectors to reduce AML/sanctions compliance burden, which can reduce financial access in some regions.
What is the primary function of a payment-versus-payment (PvP) settlement mechanism in foreign exchange transactions?
Answer: To ensure both legs of a currency exchange are settled simultaneously, eliminating principal risk
PvP (Payment-versus-Payment) settlement ensures that the final transfer of one currency occurs simultaneously with the final transfer of the other currency, eliminating the principal (Herstatt) risk of one leg settling without the other.
Which entity operates CLS (Continuous Linked Settlement), the primary PvP settlement service for FX transactions?
Answer: CLS Bank International, a special-purpose bank regulated by the Federal Reserve
CLS Bank International is a special-purpose bank regulated and supervised by the Federal Reserve that operates the CLS system, providing PvP settlement for FX transactions across multiple currencies and member financial institutions.
What does 'value date' mean in the context of a cross-border wire transfer?
Answer: The date on which the funds are to be credited to the beneficiary's account and become available
The value date is the date on which the funds transfer is to take effect — i.e., when the funds become available to the beneficiary — which may differ from the date the payment instruction is sent or processed.