This lesson examines the infrastructure used to settle financial transactions, both domestically and internationally, which is critical for managing cash flows.

6.1 The Clearing and Settlement Process
This process involves the transmission, reconciliation, and final transfer of funds between financial institutions. Key systems covered include :

  • Fedwire (US): A real-time gross settlement system.

  • CHIPS (US): A private clearing system for large-value payments.

  • CHAPS (UK): A high-value clearing system.

  • TARGET2 (EU): The European system for the settlement of central bank operations and large-value payments.

6.2 The Automated Clearing House (ACH)
The ACH system is used for the automated processing of high-volume, low-value payments, such as payroll deposits, direct debits, and vendor payments .

6.3 SWIFT and Correspondent Banking
SWIFT is a secure global messaging network used by banks and other financial institutions to communicate payment instructions and other messages . Correspondent banking is the mechanism through which banks provide services to one another, particularly for cross-border payments.

PreviousNext