In this article, we’re explaining the meaning, purpose, and use of the nostro account.
This article is part of our series on banking basics, ranging from opening different types of bank accounts around the world to understanding how various aspects of the banking system operate.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- Nostro Account
- Nostro vs Vostro Account
- Frequently Asked Questions
- Do You Want Help Opening Accounts?
Nostro Account
Nostro account refers to an account held by a financial institution with a foreign bank in a foreign country. This type of account is primarily used to facilitate foreign exchange and international trade on behalf of the account holder.
That said, nostro accounts also play a role in cross-border payments, international settlements, currency conversion, risk management, and interbank transactions. Likewise, these accounts can be an important tool to overcome currency fluctuations, international cash management, and foreign remittances.
Additionally, almost all countries offer some form of nostro account to international banks. However, local banking regulations can impact the specific services offered to banks from various countries. This is especially true in the case of sanctioned countries or those with competing geopolitical interests.
Anyone familiar with banking might be wondering how a nostro account differs from a correspondent bank account. Unlike a correspondent bank account, which facilitates transactions on behalf of the account holder’s customers, these accounts are used to facilitate the account holder’s own transactions.
Nostro vs Vostro Account
The main difference between a nostro account and a vostro account is the perspective being taken when looking at the same bank account. In short, nostro and vostro are accounting distinctions that represent the same account held by a financial institution at another financial institution.
The term “nostro account” represents the perspective of the account-holding financial institution while the term “vostro account” represents the perspective of the bank holding the deposit.
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Frequently Asked Questions
Below are a few of the most common questions we receive from people looking into this topic. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
What Is An Example of a Nostro Account?
An example of a nostro account would be a bank account that is opened in India by a US bank in order to facilitate foreign exchange and international trade transactions. On the other hand, an Indian bank can also have one of these accounts held with a bank in the United States.
What Is the Difference Between a Nostro Account and Vostro Account?
The difference between a nostro account and a vostro account is the perspective that the two terms represent. In short, the two terms refer to the same bank account. However, nostro represents the perspective of the account holder while vostro represents the perspective of the financial institution holding the deposit.
What Does Nostro Account Stand For?
Nostro account stands for a bank account that is opened with a bank on behalf of another bank in a foreign country. These accounts are an important tool used in order to facilitate international banking, international trade transactions, and foreign exchange.
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