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

What is described as an account established to handle financial transactions on behalf of a financial institution?

1. Exempt Account

2. Correspondent Account

3. Deferred Payment

4. Respondent Account

The correct answer is: Correspondent Account

A correspondent account is specifically designed for financial institutions to conduct transactions on behalf of another financial institution. This arrangement is crucial for global banking, where a financial institution in one country needs to facilitate transactions for clients who are dealing with a bank in another country. Through these accounts, banks can execute services such as wire transfers, deposits, and foreign currency exchanges without having to establish a physical presence in the other country. Correspondent accounts play a vital role in the international banking system, enabling institutions to manage cross-border transactions efficiently. They often involve various services, including trade-related transactions, making them essential for connecting different banking networks around the world. In contrast, exempt accounts typically refer to accounts that are not required to meet certain regulatory requirements due to the nature of the account holder. Deferred payment refers to arrangements in which payment is delayed until a future date, and a respondent account refers to the account that the corresponding bank holds in its own books when it engages with a foreign financial institution. Understanding these distinctions highlights why the correspondent account is identified as the appropriate answer in the context of managing financial transactions for a financial institution.