International Banking Practices Flashcards
7 cards from real CBP 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 Banking Practices flashcards as text
Which international body sets the Basel III capital adequacy standards for banks?
Answer: Bank for International Settlements
The Basel III framework was developed by the Basel Committee on Banking Supervision, which operates under the Bank for International Settlements (BIS).
A US bank receives a demand deposit from a foreign national who is a Politically Exposed Person (PEP). What is the MOST critical immediate step?
Answer: Apply enhanced due diligence procedures
BSA/AML regulations require enhanced due diligence (EDD) for PEPs, not automatic refusal or immediate reporting unless suspicious activity is identified.
Under a Confirmed Irrevocable Letter of Credit, who bears the payment obligation if the issuing bank defaults?
Answer: The confirming bank
In a confirmed LC, the confirming bank adds its own independent payment guarantee, so it must pay even if the issuing bank fails.
Which SWIFT message type is used for interbank funds transfers (cover payments)?
Answer: MT 202
MT 202 is the SWIFT General Financial Institution Transfer used for bank-to-bank (cover) payments, while MT 103 handles customer credit transfers.
What is 'transfer pricing' in the context of international banking?
Answer: The internal rate charged between subsidiaries within a multinational banking group
Transfer pricing refers to the internal rates that different entities within the same banking group charge each other for funds or services, subject to arm's-length standards.
A documentary collection under URC 522 is best described as:
Answer: A bank acting as intermediary to transmit documents against payment or acceptance
Under the ICC's URC 522 rules, documentary collections involve banks transmitting shipping documents to the buyer's bank for release against payment (D/P) or acceptance (D/A), without the bank's own payment guarantee.
Which term describes the risk that a counterparty in a foreign exchange transaction will fail to deliver the currency sold after the other party has already delivered?
Answer: Settlement risk (Herstatt risk)
Herstatt risk (or settlement risk) arises from time-zone differences in FX settlement, famously illustrated by the 1974 collapse of Bankhaus Herstatt.