What is Nostro Account- Vostro and Loro Account
⇒Nostro Vostro Loro Account
To facilitate ease of doing international trades & businesses banks generally maintain three types of current accounts for the quick transfer of funds in different currencies namely ‘Nostro’, ‘Vostro’ and ‘Loro’.
It is very important to know that Nostro means ‘Our‘, Vostro means ‘Your‘ and Loro means ‘Their‘. Therefore, Banks generally uses these three terms in terms of international transactions.
Considering the importance of three current accounts today I have decided to write a blog post on What is a Nostro Account. Similarly, I will discuss on Vostro and Loro accounts as well. So basically, there are three types of International current accounts.
⇒What is Nostro Account?
When a bank maintains its foreign currency account in a bank in a foreign country in the local or home currency of that country it is called a “Nostro” account. It means Our money with you.
For example, when an Indian bank maintains its US$ account in a bank in the USA it is called a Nostro account of the Indian bank. So, it can be said that a current account of an Indian Bank or a dealer in a foreign country in the local currency of that country is termed as Nostro account.
Now, let’s take another example to make it more simple.
Say you maintain a Nostro A/C (our account with you) in Australian Dollar(AU$) in an Australian Account maintained by an Indian Bank with an Australian Bank.
Now, when the Indian Bank deposits the AU$ in its Nostro Account, the Australian Bank credits the Nostro Account of the Indian Bank. Similarly, when the Indian Banks makes the payment from its Nostro A/C, the Australian Bank debits the Nostro A/C of the Indian Bank.
Nostro A/C is actually debited or credited for actual withdrawals and deposits of foreign currency, the balance kept in the Nostro A/C is not affected when the Indian Bank enters into any forward deal agreement to buy or sell foreign currency.
Therefore, Banks generally use Nostro Account to make any transaction with other parties in a foreign country where there is no physical presence, and in foreign currency.
So, the importance of Nostro Account lies in doing international trades in foreign currency i.e. a local currency to the other party.
⇒What is Vostro account?
When a bank maintains a local or home currency account of a foreign bank or branch in its own country it is called a “Vostro” account. It means Your money with us.
For example when an Indian bank maintains a ₹(Indian Rupees) account of a bank/branch of the USA in India. Thus, we can see that Nostro account is the opposite of the Vostro account and vice versa.
⇒What is Loro account?
When a bank remits its foreign currency fund to a foreign bank for credit to an account of a third bank it is called a Loro account. It means Their money.
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Final Word on What is Nostro Vostro Loro Account?
Since, many a time foreign exchange transaction becomes little cumbersome, to provide a better facility in making international transactions banks maintain these type of three current accounts.
In interbank transactions, foreign exchange is transferred from one account to another account and from one country to another.
Therefore, the banks maintain three types of current accounts in order to facilitate the quick transfer of funds in different currencies. Finally, I hope that I have been able to show some lights on today’s blog post on What is Nostro Account.