Banking & Financial Awareness Quiz: SWIFT, Nostro-Vostro Accounts and Cross-Border Payments

The correct answer is B, Society for Worldwide Interbank Financial Telecommunication. The word Society is the key, because SWIFT is a cooperative society owned by its member financial institutions rather than a company or a public authority. It was founded in 1973 to replace the insecure and unstandardised telex traffic between banks and went live in 1977.

Options A, C and D are invented expansions built around the same letters, and each is wrong on the most important word. None of them contains Society, so a candidate who remembers only that one word can eliminate all three at once. Two further points usually accompany this question: the headquarters are at La Hulpe near Brussels in Belgium, and SWIFT is a messaging network only, so it neither holds accounts nor settles payments. The actual movement of value happens through the accounts banks hold with each other or through a central bank's settlement system.

The correct answer is B, Belgium. SWIFT is headquartered at La Hulpe, in the outskirts of Brussels, and it is therefore incorporated under Belgian law and supervised by a committee of central banks with the National Bank of Belgium as the lead overseer. This Belgian location matters in current affairs, because European Union decisions have at times required SWIFT to disconnect banks of particular countries.

Option A, Switzerland, is the most tempting wrong answer, because the first letter of SWIFT suggests it and because Switzerland hosts the Bank for International Settlements at Basel and many international bodies at Geneva. Option C is wrong, though the network has important operating centres in the United States and the Netherlands. Option D is wrong; London is a great financial centre but not SWIFT's seat. Remember the pairing: SWIFT in Belgium, the Bank for International Settlements in Switzerland.

The correct answer is B, it is a messaging network that carries instructions but does not itself transfer funds. SWIFT transmits standardised, secure messages such as an instruction to pay a beneficiary or to issue a letter of credit. The value moves only when the banks involved debit and credit the accounts they maintain with one another, or when a central bank settlement system is used.

Option A is the error the question is designed to catch: SWIFT holds no customer or bank accounts and performs no settlement. Option C is wrong because the International Monetary Fund lends to member countries and surveils their economies; it runs no currency exchange of this kind, and SWIFT is a private cooperative of banks. Option D is wrong because cheque clearing is domestic and is handled in India by the Cheque Truncation System. The distinction between messaging and settlement is the single most examinable idea in this chapter.

The correct answer is B, the Indian bank's foreign currency account with a bank abroad. Nostro means ours, and the full sense is our account with you. So a dollar account maintained by an Indian bank with a correspondent bank in New York, or a euro account with a bank in Frankfurt, is that Indian bank's nostro account, and it is from such an account that payments to foreign beneficiaries are made.

Option A describes a vostro account, which means your account with us, and it is the mirror image of the right answer; the same account is a nostro to one bank and a vostro to the other, so the label depends on whose books you are reading. Option C describes nothing in this vocabulary, although a resident's foreign exchange needs are met under the Liberalised Remittance Scheme. Option D is simply a current account of the central bank. A linked term is the mirror account, the home-currency record a bank keeps of its own nostro balance for reconciliation.

The correct answer is B, a vostro account. Vostro means yours, and from the Indian bank's point of view the account is your account with us. Such accounts are held in Indian rupees, and the foreign bank uses them to make and receive payments in India. In the foreign bank's own books exactly the same account is described as a nostro account.

Option A, nostro, would be correct only from the other side of the relationship, and it is the inversion examiners most often test. Option C, loro, means their account and is used when a bank refers to an account that belongs to some third bank and not to itself. Option D, escrow, is a quite different idea: money held by a neutral party until an agreed condition is fulfilled, common in mergers and in real estate. The related Indian term is the Special Rupee Vostro Account, opened for settling foreign trade in rupees under the arrangement of July 2022.

The correct answer is B, the record a bank keeps in its own books, in home currency, of its nostro balance. The nostro account itself lies in the books of the foreign correspondent and is denominated in foreign currency. To track it, the bank at home maintains a parallel account in rupees, converted at the appropriate rate, and the two are reconciled regularly so that unmatched entries, missing credits or stale debits come to light quickly.

Option A describes nothing in this vocabulary; a customer's account belongs to the branch where it is opened. Option C is wrong because a nostro relationship is not a joint account; one bank is the account holder and the other is the account keeper. Option D describes an inoperative account under the rules on unclaimed deposits, an unrelated topic. Learn the four together: nostro ours with you, vostro yours with us, loro theirs, mirror our own record of the nostro.

The correct answer is B, eight or eleven. Under the standard ISO 9362 a BIC has four characters identifying the institution, two identifying the country on the ISO 3166 list, and two identifying the location, which makes eight. When a specific branch has to be named, three more characters are added, giving eleven. The eight-character form refers to the institution's primary office.

Option A is wrong on both counts and matches no part of the standard. Option C is wrong; no BIC runs to ten or twelve characters. Option D is wrong because the eleven-character form is optional, used only for a branch. Do not confuse the BIC with two other codes: the Indian Financial System Code, of eleven characters, which identifies a bank branch for domestic RTGS, NEFT and IMPS transfers, and the International Bank Account Number under ISO 13616, which identifies an account and is used in Europe but not in India.

The correct answer is A, MT 103. The MT 1 category covers customer payments, and MT 103 is the standard instruction by which a bank asks its correspondent to pay a named beneficiary a stated amount, carrying the remitter's and beneficiary's details and the charges instruction. It is the message behind almost every retail outward remittance.

Option B, MT 202, belongs to the MT 2 category of financial institution transfers and moves funds from one bank to another, often as the cover payment that accompanies an MT 103. Option C, MT 700, belongs to the MT 7 documentary credits and guarantees category and is the message by which a letter of credit is issued, with MT 760 used for a guarantee or standby credit. Option D, MT 940, is a statement message in the MT 9 cash management category. Learn the categories by their first digit; it answers a whole family of questions.

The correct answer is A, Special Rupee Vostro Accounts. Under the arrangement, an authorised dealer bank in India opens such an account for the correspondent bank of a partner country. Indian importers pay rupees into the account and Indian exporters are paid out of it, and the balance may be invested in Indian government securities. The aims are to cut dependence on hard currency, to save conversion cost and to keep trade flowing with countries facing payment difficulties.

Option B, an Exchange Earners Foreign Currency account, lets an Indian exporter retain part of its earnings in foreign currency instead of converting them. Option C, a Non-Resident External account, is a rupee account for a non-resident Indian, fully repatriable, meant for personal savings and not for trade settlement. Option D, a Resident Foreign Currency account, is for a returning Indian to hold foreign currency brought back. Only the first is a correspondent banking account used for settling trade.

The correct answer is C, two hundred and fifty thousand US dollars. The Liberalised Remittance Scheme allows a resident individual, including a minor, to remit up to that amount in a financial year for any permitted current account purpose such as travel, education, medical treatment, gifts and maintenance of relatives, and for permitted capital account purposes such as buying property or shares abroad. The limit was raised to this figure in 2015.

Option A, twenty-five thousand dollars, was the limit when the scheme was introduced in 2004, so it is correct only historically. Option B, one hundred thousand dollars, was an intermediate limit, and the figure was also reduced to seventy-five thousand for a short period in 2013 before being raised again. Option D, one million dollars, is the limit under a separate facility, the remittance of assets by a non-resident Indian out of a Non-Resident Ordinary account or inherited property, in a financial year. The scheme does not permit remittances for lottery, margin trading or to countries identified as non-cooperative.

The correct answer is A, the Structured Financial Messaging System. Developed by the Institute for Development and Research in Banking Technology at Hyderabad and built on the INFINET network of the banking sector, it carries the secure, standardised messages behind the Reserve Bank's Real Time Gross Settlement and National Electronic Funds Transfer, and is also used for inland letters of credit between Indian banks. It is in effect the domestic counterpart of SWIFT.

Option B, the National Automated Clearing House, is a bulk payment service of the National Payments Corporation of India for salaries, dividends, subsidies and recurring debits, not a messaging standard. Option C, the Cheque Truncation System, clears cheques by exchanging their electronic images instead of moving paper. Option D is a loose description and not the name of a system. The lesson to carry away is that SWIFT is for cross-border messages, while this system, RTGS, NEFT, IMPS and UPI are domestic.

The correct answer is B, Singapore. The linkage joined India's Unified Payments Interface with Singapore's PayNow, so that users of either system could send money across the border using a mobile number or a virtual payment address rather than full bank details. It was the first such linkage of two national fast payment systems involving India, and the work was done through NPCI International Payments Limited, a subsidiary set up in 2020 to take UPI and RuPay abroad.

Option A is wrong as to this event, although the United Arab Emirates is among the countries where RuPay and UPI acceptance has been extended. Option C, Nepal, and option D, Bhutan, are both countries where Indian payment instruments have been made usable, Bhutan notably accepting both RuPay and UPI; but neither involved a two-way linking of fast payment systems in February 2023. Keep the February 2023 UPI and PayNow pairing as the standard fact for this question.