CIR cheat sheet

Trade cycle stages: pre-shipment finance, shipment, document presentation, examination, payment, post-shipment finance; each stage has distinct credit and FX exposure.

Open account: goods shipped before payment; risk sits with exporter, mitigated by credit insurance, factoring, or forfaiting.

Collections (URC 522): documents released against payment (D/P) or against acceptance (D/A); banks act as agents only and assume no payment obligation.

Documentary credit (UCP 600): issuing bank's irrevocable undertaking to pay against complying presentation; independent of the underlying sale contract.

Incoterms 2020 risk transfer: FOB/CFR/CIF risk passes at loading on board; FCA/DAP/DPU/DDP pass at delivery to carrier or destination as named.

Incoterms 2020 cost allocation: CIF and CIP require seller to insure; CIP requires Institute Cargo Clauses (A) cover, CIF only minimum (C) cover.

Bill of lading functions: receipt of goods, evidence of contract of carriage, and document of title; only the first two apply to sea waybills.

Trade-based money laundering red flags: price mis-invoicing, phantom shipments, repeated amendments to letters of credit, and third-party payment unrelated to the trade parties.

RTGS settles each payment individually in central bank money with immediate finality; DNS nets obligations and settles at designated cycles, creating settlement risk.

Herstatt risk: cross-currency settlement exposure when one leg settles before the other; eliminated by PvP mechanisms such as CLS.

SWIFT MT vs ISO 20022: MT103 is a single customer credit transfer; pacs.008 is its ISO 20022 equivalent; coexistence period ends November 2025.

SEPA credit transfer uses ISO 20022 pain.001/pacs.008; SEPA instant credit transfer requires settlement within 10 seconds, 24/7/365.

TARGET2 migrated to T2 in March 2023; T2 runs on ISO 20022 messaging and settles in euro central bank money.

US Fedwire settles in real time in central bank money; CHIPS is a private netting system settling end-of-day in Fed funds.

Payment finality: in RTGS, finality occurs when the payment is debited/credited on the central bank's books; irrevocability follows settlement.

CHAPS (UK) is an RTGS system operated by the Bank of England; Faster Payments is a 24/7 retail system with a per-transaction limit.

Spot FX convention: T+2 settlement for most pairs; USD/CAD is T+1; value date drives exposure and settlement risk.

Forward rate formula: F = S × (1 + i_quote × t) / (1 + i_base × t); the higher-yielding currency trades at a forward discount.

Transaction exposure: FX risk on known future cash flows; hedged with forwards, futures, or options. Translation exposure: accounting risk on consolidating foreign subsidiaries.

Economic exposure: change in present value of future cash flows from FX moves; not eliminated by hedging booked transactions.

FX swap = spot plus matching forward; used for funding and rolling forward positions; the forward points equal the interest rate differential.

Option pricing: a call on the base currency gains value when the base appreciates; delta, gamma, vega, and theta measure sensitivities.

Currency carry trade: borrow low-yield, invest high-yield; profit equals interest differential minus depreciation of the invested currency.

Value at Risk: 99% one-day VaR = 2.33 × daily volatility × position value under a normal distribution assumption.

Nostro account: our account held at a correspondent bank in their currency; Vostro is the mirror account held by them with us.

Correspondent banks provide cross-border payments, FX, trade finance, and cash management to respondent banks that lack direct access to a currency's clearing system.

Nested correspondent banking: a respondent's downstream banks access the correspondent through the respondent; this raises AML/CFT risk and is restricted under Wolfsberg principles.

De-risking: correspondent banks terminating relationships with higher-risk respondents; consequence is reduced access to USD/EUR clearing for emerging-market banks.

Payment message chain: MT103/pacs.008 flows through correspondent; charges may be OUR, BEN, or SHA; SHA splits charges between sender and beneficiary.

Interbank credit lines: unsecured lines priced off benchmark rates (SOFR, €STR); limits set by counterparty credit and settlement exposure.

CLS settlement membership requires meeting eligibility criteria; third-party access is available via CLS members for smaller institutions.

Correspondent due diligence includes ownership, AML/CFT regime quality, sanctions exposure, and transaction monitoring capabilities of the respondent.

UCP 600: banks deal in documents, not goods; a complying presentation must be honoured regardless of disputes over the underlying goods.

UCP 600 examination period: maximum five banking days after presentation to determine compliance; refusal must be by single notice stating each discrepancy.

Preclusion rule (UCP 600 Art. 16): if the issuing bank fails to refuse within five banking days, it is precluded from claiming non-compliance and must pay.

Standby letter of credit is governed by ISP98 or UCP 600; it functions as a guarantee, typically payable on presentation of a demand and default statement.

Demand guarantee (URDG 758): independent of the underlying contract; payment on compliant demand; the guarantor examines within five business days.

Transferable credit: only if expressly designated; may be transferred once; the first beneficiary can substitute its invoice and draft for the second beneficiary's.

Back-to-back credit: the second credit is issued in favour of the supplier, secured by the master credit; the intermediary bank bears the performance risk.

Documents: commercial invoice, packing list, bill of lading, certificate of origin, insurance certificate; discrepancies commonly involve late shipment, late presentation, or inconsistent descriptions.

FATF 40 Recommendations: risk-based approach; customer due diligence, record-keeping, suspicious transaction reporting, and targeted financial sanctions.

CDD triggers: new relationship, occasional transactions above the threshold (USD/EUR 15,000), suspicion of ML/TF, or doubts about prior identification data.

Beneficial ownership threshold: FATF recommends identification of natural persons owning or controlling 25% or more; some jurisdictions use lower thresholds.

Sanctions screening: name and entity screening against OFAC SDN, EU consolidated list, UN list, and UK OFSI; fuzzy matching generates false positives requiring disposition.

OFAC 50% rule: entities owned 50% or more, directly or indirectly, by one or more blocked persons are themselves blocked even if not listed.

Strict liability: OFAC civil penalties do not require knowledge or intent; a US nexus (USD clearing, US person, US-origin goods) triggers jurisdiction.

Suspicious activity report: filed with the national FIU; tipping off the customer is prohibited; no de minimis threshold for suspicion.

Correspondent banking enhanced due diligence: understand the respondent's AML programme, customer base, and nested relationships; conduct periodic refresh.

Transfer risk: borrower cannot obtain foreign currency to service cross-border debt; distinct from credit risk and not captured by standard PD/LGD models.

Country risk rating drives country limits; sovereign ceiling may cap the rating of domestic borrowers below the sovereign.

Cross-border lending structures: direct loan, syndicated loan, and via a foreign subsidiary; each has different regulatory capital and tax treatment.

Syndicated loan roles: arranger, underwriter, agent bank, and participants; agent administers drawdowns, interest, and waivers on behalf of lenders.

Credit risk mitigation: guarantees, pledges, credit derivatives, and insurance reduce LGD; eligibility depends on the regulatory framework (e.g. CRR, Basel III).

Basel III leverage ratio: Tier 1 capital / total exposure measure ≥ 3%; exposure includes on- and off-balance-sheet items.

IFRS 9 expected credit loss: 12-month ECL at initial recognition; lifetime ECL on significant increase in credit risk; lifetime ECL on credit-impaired assets.

Currency mismatch: borrower earns in local currency but borrows in hard currency; a depreciation raises the effective debt service burden.

Basel III capital: CET1 ≥ 4.5%, Tier 1 ≥ 6%, total capital ≥ 8% of RWA; plus capital conservation buffer of 2.5% CET1.

Liquidity: LCR ≥ 100% (HQLA / net cash outflows over 30 days); NSFR ≥ 100% (available stable funding / required stable funding).

MiFID II: best execution, transaction reporting, product governance, and inducements rules apply to investment firms in the EU.

EMIR: mandatory clearing and reporting of OTC derivatives for in-scope counterparties; margin requirements for non-centrally cleared derivatives.

Dodd-Frank: swap dealer registration, central clearing, and the Volcker rule restricting proprietary trading by banking entities.

Market abuse: insider dealing, unlawful disclosure, and market manipulation are prohibited; suspicious transaction and order reports (STORs) are filed with the regulator.

AML directives in the EU: AMLD5/AMLD6 set CDD, beneficial ownership registers, and criminal liability; the AMLA becomes the EU AML authority.

Conduct rules: fair treatment of customers, conflicts of interest management, and suitability/appropriateness assessments for retail investment products.