CPP International Payments & Cross-Border Transactions 2 — Questions and Answers
Question 1: What is the key difference between the SHA, OUR, and BEN cost-sharing options in international wire transfers?
- They determine the speed of the transfer
- They dictate which party (sender, recipient, or both) pays the transaction fees (Correct answer)
- They specify the SWIFT message type to be used
- They determine the correspondent bank routing path
Correct answer: They dictate which party (sender, recipient, or both) pays the transaction fees
SHA (shared), OUR (sender pays all fees), and BEN (beneficiary pays all fees) are charge-sharing instructions that determine how bank fees are allocated between the sending and receiving parties in an international transfer.
Question 2: What is the purpose of ISO 20022 in the context of international payments?
- To set global interest rate standards for cross-border loans
- To provide a universal financial messaging standard that enables richer, more structured payment data (Correct answer)
- To establish a single global currency for international trade
- To regulate foreign exchange markets
Correct answer: To provide a universal financial messaging standard that enables richer, more structured payment data
ISO 20022 is a global standard for financial messaging that enables richer, more structured and consistent data in payment messages, improving automation, compliance, and reconciliation across international payment systems.
Question 3: Which of the following best describes the 'lifting fee' in an international payment?
- A regulatory compliance fee charged by the central bank
- A fee charged by an intermediary or correspondent bank for processing the transfer (Correct answer)
- A surcharge applied for same-day international settlement
- A fee for converting physical currency at a foreign branch
Correct answer: A fee charged by an intermediary or correspondent bank for processing the transfer
A lifting fee is a charge levied by an intermediary or correspondent bank for handling and processing an international wire transfer as it passes through that institution.
Question 4: What is the primary purpose of Know Your Customer (KYC) requirements in cross-border payments?
- To speed up the processing of international transfers
- To verify the identity of clients and assess their risk profile to prevent financial crimes (Correct answer)
- To negotiate favorable foreign exchange rates for customers
- To determine the optimal correspondent bank network for a transfer
Correct answer: To verify the identity of clients and assess their risk profile to prevent financial crimes
KYC requirements mandate that financial institutions verify and understand their customers' identities and assess the risk of potential money laundering or terrorist financing before facilitating cross-border transactions.
Question 5: Which payment system is used for high-value U.S. dollar transactions that often serve as the settlement leg for international payments?
- ACH
- CHIPS (Correct answer)
- Nacha
- EFT
Correct answer: CHIPS
CHIPS (Clearing House Interbank Payments System) is the primary U.S. private-sector system for large-value, same-day dollar transactions, including the dollar settlement of many cross-border payments.
Question 6: What does the term 'nostro account' refer to in international banking?
- A foreign currency account held by a domestic bank at a foreign correspondent bank (Correct answer)
- An account used exclusively for SWIFT messaging fees
- A reserve account maintained at the central bank for foreign exchange
- A shared account used by multiple banks for settlement purposes
Correct answer: A foreign currency account held by a domestic bank at a foreign correspondent bank
A nostro account (from the Latin for 'ours') is an account that a domestic bank holds at a foreign correspondent bank, denominated in the foreign currency, used to facilitate international transactions in that currency.
Question 7: Under FATF Recommendation 16 (the 'Travel Rule'), what information must accompany cross-border wire transfers?
- The foreign exchange rate used for the conversion
- Originator and beneficiary identification information including names and account numbers (Correct answer)
- The SWIFT routing path through all correspondent banks
- The purpose of payment and supporting trade documentation
Correct answer: Originator and beneficiary identification information including names and account numbers
FATF Recommendation 16 (the Travel Rule) requires that originator and beneficiary identifying information — including names, account numbers, and addresses — travel with cross-border wire transfers to enable AML/CFT oversight.
CPP International Payments & Cross-Border Transactions 2
What is the key difference between the SHA, OUR, and BEN cost-sharing options in international wire transfers?