NOSTRO & VOSTRO Accounts

WHAT IS A NOSTRO ACCOUNT ?

The term Nostro is derived from latin word that means “ours” , & it is used to facilitate foreign exchange and international trade transactions involving foreign currencies. A Nostro account is a bank account that a bank holds with a foreign bank in the currency of the country where the funds are held.

For example, Nostro A/C (our account with you) – is a current account maintained by a domestic bank (say SBI) with a foreign bank (say Citi Bank) in a foreign country.

It is one of the most important and key facilities provided by the banks to the customers to carry out their foreign exchange transactions smoothly without difficulty.

FEATURES OF NOSTRO ACCOUNT

  • This account is held in foreign currency by the domestic bank and it is opened by the person dealing in international transactions requesting bank to receive or pay the foreign exchange on behalf of him.
  • This account is used for settlement of International Transactions i.e. receipt or payment of amount in currency other than home currency.
  • Only a domestic bank is allowed to open the NOSTRO Account with the foreign bank held in domestic country.

WHAT IS A VOSTRO ACCOUNT ?

Vostro is a Latin word that translates to “your,” as in “your account.” It is the account which is held by a foreign bank with a domestic bank in domestic currency.

A vostro account is established to enable a foreign correspondent bank to act as an agent or provide services as an intermediary for a domestic bank.

For example, if Citibank maintains an account with SBI in India in INR, it will be a vostro account for SBI.

DIFFERENCE BETWEEN NOSTRO & VOSTRO ACCOUNT

  1. A NOSTRO account is maintained by domestic bank with the foreign bank in foreign currency whereas the VOSTRO account is the account held by foreign bank in home currency of that bank.
  2. Nostro is latin word which means ours i.e., our account with you. Whereas the Vostro is the latin word derived from yours i.e., your account with us.
  3. Domestic bank state bank of India opens the account with bank of America in US dollars for State bank of India it is the NOSTRO account maintained with Bank of America and for Bank of America it is VOSTRO account maintained by State Bank of India.

 

Thus, in modern times, Nostro and Vostro Accounts are the essential components of the financial system since they help in executing large foreign exchange transactions without having any physical presence in other countries.

Accounting & Finance for Banking

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