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

What is the primary use of a Nostro account in international banking?

1. To facilitate currency exchange rates

2. To hold foreign currency for domestic banks

3. To process debit card transactions

4. To receive payments from international clients

The correct answer is: To hold foreign currency for domestic banks

A Nostro account primarily serves as a means for domestic banks to hold foreign currency in order to facilitate international transactions. This account is maintained by a bank in one currency in a foreign bank, thus allowing the domestic bank to conduct business in that foreign currency. It simplifies cross-border transactions by providing a straightforward way to hold and manage foreign currencies, making it more efficient for banks to manage their foreign exchange requirements and settle transactions without the need to individually convert currency for each transaction. The other options relate to different banking functions that do not directly describe the primary use of a Nostro account. While currency exchange and payment processing are involved in international banking, the specific role of a Nostro account focuses significantly on the storage and management of foreign currencies for facilitating international transactions rather than directly processing payments or transactions.