Certified Anti-Money Laundering Specialist Certification (CAMS) Practice Exam

What does a Nostro account enable for a domestic banking institution?

1. To handle deposits for domestic customers

2. To engage in domestic securities trading

3. To facilitate transactions for foreign financial institutions

4. To manage personal loans

The correct answer is: To facilitate transactions for foreign financial institutions

A Nostro account is a type of bank account that a domestic banking institution holds in a foreign bank, typically denominated in the currency of that foreign bank. This arrangement allows the domestic bank to facilitate transactions and payments in a foreign currency and to effectively manage its foreign exchange needs. This is particularly important for banks that engage in international trade or have clients who send or receive payments across borders. By using a Nostro account, a domestic bank can offer services such as wire transfers and foreign currency transactions, enhancing their competence in facilitating transactions for foreign financial institutions. Such capability supports better operations in the international financial landscape and allows banks to reduce the risk associated with currency fluctuations and cross-border settlements. In contrast, the other choices relate to domestic operations which do not require the specific international focus that a Nostro account provides. Managing personal loans, handling deposits for domestic customers, and engaging in domestic securities trading do not inherently involve foreign currency transactions or require the same level of international banking functionality that a Nostro account delivers.