CTP(CD) Canadian Exam cheat sheet

Canadian payments settlement: Lynx (operated by Payments Canada) is the real-time gross settlement system for large-value and time-critical payments; it replaced the Large Value Transfer System (LVTS) in 2021.

Lynx settlement finality: payments settle on a gross, real-time basis using central bank balances or collateralized credit lines through the Bank of Canada; settlement is irrevocable once final.

Automated Clearing and Settlement System (ACSS) handles retail batch items (cheques, pre-authorized debits, direct deposits) on a deferred net settlement basis with defined exchange windows.

CPA Standard 005 defines the structure of the Canadian Payments Association payment item and the routing/transit format (transit number plus institution code and account number).

Cheque clearing in Canada uses image-based clearing under Rule A4; a cheque is truncated at the point of deposit and cleared electronically.

Bank of Canada interest rate corridor: the target overnight rate sits between the deposit rate (lower bound, the rate on excess settlement balances) and the bank rate (upper bound, the rate on overnight loans).

Basel III in Canada is implemented by OSFI; key ratios are Common Equity Tier 1 (CET1), Tier 1, Total Capital, and the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).

Deposit insurance: CDIC insures eligible deposits up to CAD 100,000 per depositor per insured category per member institution; coverage is per category, so separate categories can each receive the limit.

ISO 20022 is the global messaging standard for payments; its structured data model supports richer remittance information and is replacing legacy formats such as SWIFT MT messages via the MT-to-MX migration.

SWIFT gpi (global payments innovation) adds an end-to-end Unique End-to-End Transaction Reference (UETR) to track cross-border payments and provides transparency on fees and timing.

Correspondent banking: a nostro account is held by the bank in a foreign currency at another bank; a vostro account is the mirror held by the foreign bank for the domestic bank; a loro account is a third-party account.

Foreign exchange quotation conventions: in a two-way price, the dealer buys at the bid and sells at the offer; the spread is the difference between them and compensates the dealer for risk and service.

Cross-rate calculation: to derive a rate between two currencies when only USD rates are quoted, divide or multiply depending on whether USD is the base or the quote currency in each leg.

Payment message fields: value date, remitter, beneficiary, charge code (SHA shared, OUR sender pays all, BEN beneficiary pays all), and purpose code determine cost allocation in cross-border transfers.

Sanctions and AML screening: payments must be screened against lists such as OSFI's consolidated Canadian sanctions list before release; hits are held for review, not automatically rejected.

Trade finance instruments: a documentary letter of credit shifts payment risk to the issuing bank, while a standby letter of credit functions as a guarantee of performance rather than a payment mechanism.

Value at Risk (VaR) at confidence level c and horizon h: VaR = portfolio value × (z-score at c) × volatility × sqrt(h) under a normal, zero-mean approximation.

Expected shortfall (ES) is the average loss conditional on losses exceeding VaR; it is sub-additive and therefore coherent, unlike VaR.

Duration approximates price sensitivity of a fixed-income position: percentage price change ≈ −modified duration × change in yield; convexity adds a second-order correction.

Interest rate risk in the banking book: repricing gap = rate-sensitive assets − rate-sensitive liabilities; a positive gap benefits from rising rates.

Liquidity ratios: LCR = high-quality liquid assets / net cash outflows over 30 days (minimum 100%); NSFR = available stable funding / required stable funding (minimum 100%).

Credit risk: expected loss = probability of default × loss given default × exposure at default; unexpected loss is covered by economic capital.

Operational risk under Basel: capital is computed using the standardized approach based on business indicator components (interest, services, and financial components).

Counterparty credit risk: current exposure = max(mark-to-market, 0); potential future exposure adds an add-on for future market moves; collateral and netting reduce exposure.

Cash conversion cycle = days inventory outstanding + days sales outstanding − days payables outstanding; a shorter cycle frees working capital.

Float components: mail float, processing float, and availability float; collecting float increases funds in transit, while disbursement float delays outflow.

Concentration and pooling: notional pooling offsets balances without physical transfer, while physical pooling (zero-balance accounts) sweeps balances to a header account.

Short-term investment policy typically ranks safety, liquidity, and yield in that order, with permitted instruments and maturity limits defined by the board.

Weighted average cost of capital (WACC) = (E/V) × cost of equity + (D/V) × cost of debt × (1 − tax rate); used as a hurdle rate for treasury decisions.

Money market instruments in Canada include bankers' acceptances, treasury bills, commercial paper, and term deposits; BA rates are a benchmark for short-term corporate funding.

Hedging with forwards locks a future exchange rate; a money market hedge borrows in one currency and invests in the other to replicate the forward outcome.

Liquidity buffer sizing: hold sufficient high-quality liquid assets to cover stressed outflows under a defined stress scenario, reviewed against the LCR framework.

Treasury management system (TMS) core functions: cash positioning, bank account management, payments, reconciliation, debt and investment tracking, and reporting.

Straight-through processing (STP) rate = payments processed without manual intervention / total payments; it is a key operational efficiency metric.

SWIFT connectivity options: SCORE (shared infrastructure), MA-CUG (member-administered closed user group), and service bureaus; each differs in cost and control.

Host-to-host and API connectivity: APIs enable real-time balance and payment initiation; host-to-host uses file-based batch exchange, often via SFTP.

Reconciliation matching rules: exact match on amount, date, and reference; tolerance matching for fees; and exception queues for unmatched items.

ERP integration: treasury typically consumes payables and receivables data from ERP and returns cash positions; integration design must define the master system for each data field.

Business continuity for treasury systems: recovery time objective (RTO) and recovery point objective (RPO) define acceptable downtime and data loss in a failover plan.

Segregation of duties in treasury systems: payment initiation, approval, and release should be assigned to different users, enforced by role-based access controls.