What is a Nostro Account?
A Nostro account is a specific designation for a type of banking account that shows who the owner of the capital is. As part of the financial jargon common to the banking industry, banks have started to use the terms “Nostro” and “Vostro” to differentiate between different types of accounts. The Nostro version belongs to the party who is keeping track of it. A Vostro account is an account where money is being held by an outside party. These distinctions help banks and other financial holders keep track of what is due to an investor or depositor.
One example is when a bank customer puts his or her money into a bank so that the bank is holding the money for the customer. The customer can call it a Nostro account because she owns the money in the account. The bank calls it a Vostro account because it is the customer’s money that the bank is holding.
Those trying to understand the difference between Nostro and Vostro accounts can profit from an understanding of what these words mean. In European Romance languages, they mean “ours” and “yours” respectively. In Spanish, for example, “ours” translates to “nuestra” and “yours” translates to “vuestra.” In Italian, the word “nostro” or “nostra” means ours, as in the mafia expression “cosa nostra,” which translates to “our thing.”
In short, if someone refers to an account as Nostro, she is referring to an account that she owns. If a bank or other party refers to a Vostro account, that is an account that includes deposits by others that the bank is holding on their behalf. Both of these accounts are types of correspondent accounts, where two parties agree on the services provided by the party holding the capital.
Besides situations where banks hold money for individual customers, a Nostro account can be useful in Forex exchange trading or in interbank situations. Interbank deposits can involve changing money into foreign currency denominations for various financial purposes. In national or regional markets, an interbank offered rate reflects a prime lending rate between banks. These rates are often used to determine interest on various accounts held by third parties, or Vostro accounts. Those looking at Vostro accounts may be trying to figure out what interest is due to the account holder, or what restrictions are in the financial agreement between the two parties.
What would you call if a German bank, say DB, holds an EUR account with BNP in Paris? Is it a Nostro account?
When a Nostro account balance is increased, is the outflow greater than the inflow, or is the outflow less than the inflow?
@ddljohn-- Nostro, vostro and loro terms are used often for remittances. You can think of a loro account as being "their account with them." Multiple banks may be working with one another when you send money abroad. Let's say that Bank A has an account with foreign Bank B and Bank C also has account with the same Bank B. If Bank A requests Bank B to transfer funds to the Bank C account, the Bank C account will be titled as the loro account (Bank C's account with Bank B).
It might similarly be easier to think of nostro accounts definition as "our account with you" and the vostro accounts definition as "your account with us."
I send money home to India regularly and often hear the bankers use nostro, vostro and loro accounts when I go to transfer money. I now understand what they mean by nostro and vostro. But what is a loro account?
So in short: If i have a account in Singapore in Singapore Dollars at a Singapore bank then it is called a NOSTRO.
If a singapore bank holds a account in India at an indian bank with Indian currency, it is called as VOSTRO.
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