CAIIB BFM MCQ – Top 600 Highly Expected Questions: 36 Revision Flashcards

The foreign exchange market is the mechanism by which currencies are traded, and its rates are influenced by macro factors like inflation and interest rates

Nostro, Vostro, and Loro are Latin terms used in correspondent banking to describe the exact same bank account from three different perspectives to avoid confusion in international wire transfers

A Value Date in foreign exchange arithmetic is the specific future date on which the counterparties actually exchange the funds

When a direct quote between two currencies like Euro and Rupee is unavailable, the rate must be calculated through a common third currency, which is the US Dollar.

Position limits are predefined financial ceilings that dictate the maximum foreign exchange risk a bank can carry at any moment

Merchant rates are the exchange rates applied by banks when dealing with their retail or corporate customers, as opposed to interbank rates used between banks themselves

A Currency Option is a derivative contract that grants the buyer the right, but absolutely not the obligation, to buy or sell a currency at a specified strike price on a future date

Forex arithmetic requires strict identification of which currency is held constant, called the base, and which fluctuates, called the variable, to determine the direction of value

Buying rates are split into two categories based purely on the time value of money and the speed at which the bank gains access to the foreign currency

Forward contracts are legally binding.

The Liberalised Remittance Scheme is a facility that allows resident individuals to remit up to USD 250,000 per financial year

Eligible Entities for the Liberalised Remittance Scheme are strictly defined as Resident Individuals only

The Autonomy of a Letter of Credit is the foundational legal principle dictating that the credit is a completely separate transaction from the sale or other contract on which it may be based.

A Transferable Credit is a Letter of Credit that specifically states it is transferable.

Red Clause and Green Clause Letters of Credit are specialized financial instruments containing specific clauses authorizing pre shipment financing to the seller.

A Confirmation is a definite undertaking of the confirming bank, added at the request or authorization of the issuing bank, to honor or negotiate a complying presentation of documents

A Back to Back Letter of Credit arrangement is used when a middleman receives an export credit but cannot or does not want to use a Transferable credit.

Document scrutiny is the process where banks examine presented documents to determine if they constitute a complying presentation.

A Commercial Invoice is the foundational accounting document issued by the seller to the buyer.

A Bill of Lading is a transport document issued by an ocean carrier.

A Standby Letter of Credit is an irrevocable commitment by a bank to pay a beneficiary if the applicant defaults on an obligation.

A reimbursing bank is a third party bank authorized by the issuing bank to pay out funds to the nominated bank or confirming bank after a successful document presentation.

International Commercial Terms are standard trade definitions published by the International Chamber of Commerce.

Crystallization is an accounting and risk management action taken by a bank.

An amendment is a formal, written change to the original terms of a Letter of Credit.

Force Majeure is a standard legal clause that frees both parties from liability or obligation when an extraordinary event or circumstance beyond their control prevents one or both parties from fulfilling their contractual duties

The expiry date is the absolute final date by which the beneficiary must present the required documents to the nominated bank or the issuing bank to claim their payment.

The distinction between an original document and a copy is a critical legal threshold in trade finance.

A Non Documentary Condition is an instruction or requirement written into a Letter of Credit that does not ask for a piece of paper to prove that the requirement was met.

Honor and Negotiation are the two primary methods by which a seller receives financial value for their documents.

The Date of Shipment is the exact calendar day when the physical transit of the goods officially begins.

An Assignment of Proceeds is a financial instruction where the primary beneficiary of a Letter of Credit directs the paying bank to send all or a portion of the final payment directly to a third party, such as a supplier or a creditor

A Clean Transport Document is a receipt issued by a carrier that indicates the goods were received in apparent good order and condition, with no visible damage to the cargo or the boxes holding the cargo

The Fraud Exception is a rare and severe legal override to the principle of autonomy.

The Notice of Refusal is a formal, legally binding communication from the checking bank to the presenting party.

A Revolving Letter of Credit is a single financial instrument that covers multiple shipments over a long period.