In today’s time, bank accounts and their uses are gaining momentum, especially for trade payments and overseas transactions. With that said, two types including Vostro and Nostro bank accounts are also relevant factors concerning foreign trade and related transactions. Notably, both Nostro and Vostro are terms used to describe the same bank accounts but hold different purposes. It is basically a situation where one bank holds deposits owned by another bank. These deposits are used for international trading, financial transactions, and also for settling payments.
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Confused? We’ve got you. Let’s start with the definitions.
What are Nostro and Vostro accounts?
Nostro and Vostro are Latin words that translate to ‘ours’ and ‘yours’ respectively. While a Nostro Account is said to be a record of deposits held by a bank with a foreign bank in the currency of the country holding the funds, a Vostro Account is one that is again managed by a correspondent bank on another bank’s behalf.
The difference between the two is that it is described from the point of view of the two different banks i.e., depositor and holder.
Example of Nostro vs Vostro account
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For example, Bank A in India receives money from its customers employed in the US. Thereafter, Bank A has an agreement with Bank B in the US on opening a remote account for India in US currency as it will allow the customers who want to send their money to India to deposit it in the remote account.
Following this, any money sent by the customers will be transferred by the US bank through SWIFT to its US currency account in India. As soon as the transfer is made, the bank in India can convert the fund to its local currency and further place it in their customer’s accounts.
In this situation, while the bank in India would consider its US account a Nostro account, the US would consider the account its holds for the Indian bank as a Vostro account.
