What is Vostro and Nostro Account? How it Works

A nostro account is a record of funds held by a bank with foreign bank in the currency of the country which holds the funds.The latin word of the term nostro is ours and it is used for foreign exchange and transactions related to it. It is used to settle foreign trade and its exchange transactions.This account is managed by banks that are involved in foreign transactions
An account which is managed by correspondent bank on behalf of another bank.The latin word vostro means your which suggest that it is your account. One of these accounts is represented by the HSBC Vostro account held by SBI in India.
Let's learn more about nostro and vostro account

What is the use of nostro account?

• A nostro account is used to keep track of funds held by other banks in domestic currency of the country. The mostro
• A Nostro account is a tool used by banks to keep the track of funds another banks in the local currency. The currency used is that which can be used for foreign exchange and international trading.
• The facilitator or foreign bank helps the client bank in making payments using its domestic currency when a client bank opens a nostro account with another bank in a different nation.
• The facilitator or foreign bank completes the transaction through the central bank's clearing network. If th facilitator bank can't access primary clering arrangements then the payments for the transaction can be facilitated through another bank in the same nation that is a primary clearing member of the central bank.
• Typically, banks utilise Nostro accounts for making purchases or sales in nations where they do not have a physical presence and instead rely on a reputable bank in that nation to handle the transaction on their behalf.

What is a vostro account and how does it work?

Vostro accounts are those accounts which are managed by the correspondent bank manages on another bank's behalf. These accounts are a crucial component of correspondent banking, where the bank holding the funds oversees or acts as the custodian for the account of a foreign counterpart. For instance, if a Spanish life insurance company asks a U.S. bank to manage money on its behalf, the holding bank will view that account as a vostro account of the insurance business.

• Small domestic banks can use this account to economically access the resources and services of a bigger overseas bank.
• allows one to provide a customer with international banking solutions without having to create a bank location there.
• It cuts down on the time needed for fund transfers.
• Statement reconciliation can be improved by using closely watched nostro accounts.