We are frequently perplexed by economic jargon. We believe this is a highly technical or complicated issue. However, reality occasionally deviates from this ideal. We strive to improve your financial expertise on this platform. Today, we’ll discuss Nostro and Vostro Bank accounts so that you’ll understand what the other person is talking about the next time you hear these phrases.
Nostro and Vostro, on the other hand, are two different words used to denote the same bank account, depending on the situation. These terms are commonly used in international trade and other financial operations involving two institutions.
When a transaction occurs between two banks, both institutions are required to keep track of the amount of money exchanged. To distinguish between the two sets of accounting records kept by each bank in their personal account, the words Nostro and Vostro are employed.
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What is the definition of a user account?
A bank account is a record of money owed or owned by a third party, which can be a company or an individual.
Account: Nostro
In Bank X’s records, “our” account held by another bank, Bank Y, is referred to as the Nostro account. The term “our money placed in your bank” is referred to as “Nostro,” which means “ours.” A Nostro account is a bank’s record of money placed in another bank. The goal of keeping these accounts open is to make forex trading and settlement easier.
Account Vostro:
The receiver bank refers to the account as a Vostro account. In the case of the preceding example. Bank Y uses the word “Vostro account” to refer to the account where Bank X’s deposits are deposited. “Your money that is placed in our bank” is referred to as “Vostro,” which means “yours.” A Vostro account is similar to any other bank account. The currency of the country where the money is placed is used to establish a Vostro account.
Is something still unclear?
No worries, let’s use an example to help you understand. Assume that any Indian bank X sends money from the UAE to its Indian customers as remittances. Because Bank X does not have physical branches in the UAE, it enters into an agreement with Bank Y in the UAE, and the latter opens a Dirhams account for X. Businesses sending money to UAE clients and Bank X account holders in India will have their funds credited to a Bank Y account.
Bank Y will then transfer the monies placed to Bank X’s Dirhams account in India via SWIFT. Bank X receives money in Dirhams, translates it to Indian rupees (INR), and puts it into the receivers’ local accounts.
Bank X’s Dirham account with Bank Y is classified as a NOSTRO account. From Bank Y’s standpoint, it keeps a VOSTRO account in Dirham for Bank X.
Cash assets are Nostro accounts with negative balances. Vostro accounts with credit balances, on the other hand, have liabilities.
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Nostro vs. Vostro as an example
Assume a bank in Ghana gets funds from customers who are currently employed in the United Kingdom.
The Ghanaian bank has a deal with a British bank under which the British bank will open an account for Ghana in British money remotely.
This will allow clients to send money to a bank in Ghana and have it deposited in a remote account.
The United Kingdom will thereafter transfer any money sent by Ghanaian clients.
bank to its U.K. currency account in Ghana via SWIFT. The Society for Worldwide Interbank Financial Telecommunications (SWIFT) is a non-profit organization dedicated to facilitating financial transactions between banks throughout the world.
SWIFT is a member-owned cooperative that handles financial transactions.
The Nostro and Vostro accounts are cared for by the domestic bank that owns the account.
The facilitator bank is the name given to this institution.
Cash assets are Nostro accounts that have a debit balance.
Following the transfer from the UK bank, the Ghanaian bank can convert the funds to local currency and deposit them in the customer’s accounts.
The bank in Ghana would classify its account in the United Kingdom as a Nostro account.
The account that the UK holds for the Ghanaian bank is known as a Vostro account.
