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

What is a bank draft commonly used for?

1. To serve as a loan agreement

2. As a secure instrument purchased for cash

3. To manage investment portfolios

4. To issue credit cards

The correct answer is: As a secure instrument purchased for cash

A bank draft is primarily used as a secure instrument purchased for cash, making it a trusted method of transferring funds. When a bank draft is issued, the issuing bank guarantees that the payment will be made, providing a higher level of security compared to personal checks which might bounce due to insufficient funds. This feature makes bank drafts a preferred choice for transactions that require assured payment, like purchasing real estate or making large payments to companies. Considering the other options, a bank draft does not serve as a loan agreement, as that typically requires a different set of documentation and terms. Additionally, it is not designed for managing investment portfolios, which involves different instruments and services related to investments rather than payment execution. Lastly, bank drafts are not used to issue credit cards, as credit cards relate to revolving credit accounts and not immediate cash transactions like those facilitated by bank drafts.