EDUCBA

EDUCBA

MENUMENU
  • Free Tutorials
  • Free Courses
  • Certification Courses
  • 250+ Courses All in One Bundle
  • Login
Home Finance Finance Resources Trading for dummies Nostro Account
Secondary Sidebar
Finance Blog
  • Trading for dummies
    • Trading in Forex
    • Contango and Backwardation
    • Commodity Trading
    • How to Trade Options?
    • Dimsum Bond
    • Nostro Account
    • Temporal Method
    • Spot Market
    • Pink Sheets
    • Trading Floor
    • Pump and Dump
    • Market Maker?
    • Pre-Market Trading
    • Publicly Traded Companies?
    • Share Swap?
    • Risk Reward
    • S&P 500 PE Ratio
    • PE Ratio of Nifty
    • Sharpe Ratio
    • Bull Trap
    • Fundamental Analysis vs Technical Analysis
    • Ripple vs Bitcoin
    • Ripple vs Litecoin
    • Sell Side vs Buy Side
    • Gamma Function Formula
    • Bitcoin vs Blockchain
    • Bitcoin vs Litecoin
    • Call Option vs Put Option
    • European option vs American option
    • Futures vs Forward
    • Stop Loss Order
    • Hyperledger
    • Floating Stock
    • Option Adjusted Spread
    • Penny Stocks
    • Contango vs Backwardation
    • Investing vs Trading
    • Features Of Convertible Bonds
    • Confirmation Bias Example
    • Currency Trading
    • Indian Stock Market
    • Invest in Fundamentals
    • Futures Trading
    • Technical Analysis Indicator
    • Forex Trading
    • Commodity Trading
    • Forex Trading Strategies
    • Futures Fundamentals
    • Play the Stock Market Game
    • Binary Options Trading
    • Commodities Stock Market
    • Trading Tools
    • Mistakes to Avoid While Day Trading
    • Bitcoin vs Ethereum
    • Future vs Option
    • Option vs Warrant
    • Stock Market Trading
    • Proprietary Trading
    • Employee Stock Options
    • Litecoin vs Ethereum
    • Forex Trading For Beginners
    • Variance vs Covariance
    • Trading Securities
    • Stock Futures Trading
    • Above the Line vs Below the Line
    • Stock Market Chart Patterns
    • Swing Trading Strategies
    • Currency Exchange Market
    • Forex Brokers
  • Accounting fundamentals (700+)
  • Asset Management Tutorial (200+)
  • Banking (44+)
  • Corporate Finance Basics (373+)
  • Credit Research Fundamentals (6+)
  • Economics (88+)
  • Finance Formula (386+)
  • Financial Modeling in Excel (17+)
  • Investment Banking Basics (140+)
  • Investment Banking Careers (29+)
  • valuation basics (27+)
  • Insurance Resources (14+)
  • Top Finance Books (7+)
Finance Blog Courses
  • Online Cryptocurrency Certification
  • Online CFA Level 1 Training
  • Equity Research Training

Nostro Account

By Madhuri ThakurMadhuri Thakur

Nostro Account

Definition of Nostro Account

NOSTRO Account is the bank account used for settlement of International transactions used for foreign currency dealings and it is mainly used by the exporters or importers or persons dealing in foreign currency to settle the transactions by converting from home currency to the foreign currency with the help of bank.

NOSTRO Accounts is the account kept in foreign currency held by one bank with another bank. The term Nostro is derived from latin word that means “ours” i.e., our account on your books. It is used for settlement of transactions which involves foreign currency dealings. Account which is NOSTRO for one bank is VOSTRO for another bank because NOSTRO account is “our account on your books which is in foreign currency for us” and VOSTRO account is “your account on our books which is in home currency.” The most common convertible currencies are US Dollar, Canadian dollar, British Pound, Euro, Indian Rupees, Japanese Yen etc. NOSTRO account is the record held by domestic bank of the funds held with foreign bank in the currency of foreign bank.

Features of Nostro Account

Following are the Features of Nostro Account:

  • Account Held in Foreign Currency: NOSTRO Account is the account held in foreign currency by the domestic bank and it is opened by the person dealing in international transactions requesting bank to receive or pay the foreign exchange on behalf of him.
  • Can be Opened by Bank Only: The dealer in foreign exchange cannot go to the foreign bank and ask the bank to pay. No dealer can directly deal with the foreign currency. It is only through the domestic bank and domestic bank is only allowed to open the NOSTRO Account with the foreign bank held in domestic country.
  • Used for Settlement of International Transaction Required Conversion of Currencies: NOSTRO Account is used for settlement of International Transactions i.e. receipt or payment of amount in currency other than home currency.

How does it Work?

The dealer who wants to receive or pay in foreign currency will approach to the bank to pay or receive the amount on behalf of him in foreign currency in exchange of home currency. The concerned domestic bank will approach to the foreign bank for opening of NOSTRO Account to deal in the currency of that country and accordingly if dealer wants to pay in foreign currency, the bank pays the amount to the foreign bank in foreign currency by purchasing from exchange market or by asking the foreign bank for purchase of foreign currency and pay in home currencyat the current exchange rate prevailing in the market. Then accordingly pay to the foreign dealer in his home currency. The Account maintained by Domestic bank in home currency of foreign bank is NOSTRO account for domestic bank.

Start Your Free Investment Banking Course

Download Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

Example

An Indian dealer Mr. A want to pay amount in US dollars to the dealer in US for import of goods. Now Mr. A will approach his bank to set the dollar account on behalf of him as he wanted to make payment in dollars against the goods imported from US. The local bank approached by Mr. A will approach to the foreign bank with which the bank is having banking relations and physical location in India for opening of NOSTRO Account. The bank will convert the amount paid by dealer A in US dollars against the equal amount of domestic currency paid or guaranteed by Indian dealer so that the dealer can pay in US dollars and this account can last for all transactions dealing in US currency i.e. dollar. Say domestic bank approached by Mr. A is state bank of India which opens account with Bank of America in New York then the account opened by SBI is referred as NOSTRO Account.

Why is Nostro Account Required?

It is required due to the following reasons:

  • It is used for settlement in the Foreign currency.
  • It is used for settlement of international transactions involves payment or receipt in currency other than foreign currency.
  • To give guarantee to the foreign dealer that his money will be guaranteed paid in form of prior guarantee to the foreign bank from domestic bank.
  • To give facilities and promote the foreign transactions and dealings.

Difference between Nostro Account and Vostro Account

The key differences between Nostro account and Vostro account are as follows:

  • It is the account which is maintained by domestic bank with the foreign bank in foreign currency whereas the VOSTRO account is the account held by foreign bank in home currency of that bank.
  • Nostro is latin word which means ours i.e., our account with you. Whereas the Vostro is the latin word derived from yours i.e., your account with us.
  • Domestic bank state bank of India opens the account with bank of America in US dollars for State bank of India it is the Nostro account maintained with Bank of America and for Bank of America it is VOSTRO account maintained by State Bank of India.

Advantages

Some of the advantages are:

  • The domestic dealer can pay to the foreign dealer in foreign exchange through the domestic bank and without taking any risk of foreign exchange.
  • The account will ease the transactions in international dealings.
  • The account is used for several dealings.
  • The account is easy to operate and facilitate the banking relationships with international banks.

Disadvantages

Some of the disadvantages are:

All in One Financial Analyst Bundle(250+ Courses, 40+ Projects)
Financial ModelingInvestment BankingUS GAAPCFA-Level 1 & 2
Equity ResearchM & A ModelingPrivate Equity ModelingForex Trading
Price
View Courses
250+ Online Courses | 40+ Projects | 1000+ Hours | Verifiable Certificates | Lifetime Access
4.9 (86,522 ratings)
  • The legal formalities that has to comply by the dealer in foreign currencies are high.
  • Involves the higher cost due to legal formalities.
  • Rate of interest on balance maintained is low as compared to home currency.

Conclusion

It is the account which is kept in foreign currency by the domestic bank with foreign bank having physical location in domestic country for the dealers who wants to deal in foreign currency. The dealer who wants to receive or pay in foreign currency will approach to the bank for payment or receipt at the rate prevailing or mutually decided and then that domestic bank will pay to the foreign bank and foreign bank will transfer the amount in the home currency of foreign dealer. This gives assurance to the foreign dealer but the regulations involved are many hence cost is high for opening of the account.

Recommended Articles

This is a guide to Nostro Account. Here we also discuss the definition and features of nostro account along with advantages and disadvantages. You may also have a look at the following articles to learn more –

  1. Relevance in Accounting
  2. Accounting Transaction
  3. Accounting Estimates
  4. Types of Accounting
Popular Course in this category
Cryptocurrency Training (9 Courses)
  9 Online Courses |  55+ Hours |  Verifiable Certificate of Completion |  Lifetime Access
4.5
Price

View Course

Related Courses

CFA level 1 Course with Mock Tests & Solutions (20 Courses, 3+ Mock Tests with Solutions)4.9
Equity Research Training (17 Courses)4.8
3 Shares
Share
Tweet
Share
Primary Sidebar
Footer
About Us
  • Blog
  • Who is EDUCBA?
  • Sign Up
  • Live Classes
  • Corporate Training
  • Certificate from Top Institutions
  • Contact Us
  • Verifiable Certificate
  • Reviews
  • Terms and Conditions
  • Privacy Policy
  •  
Apps
  • iPhone & iPad
  • Android
Resources
  • Free Courses
  • Investment Banking Jobs Offer
  • Finance Formula
  • All Tutorials
Certification Courses
  • All Courses
  • Financial Analyst All in One Bundle
  • Investment Banking Training
  • Financial Modeling Course
  • Equity Research Course
  • Private Equity Training Course
  • Business Valuation Course
  • Mergers and Acquisitions Course

ISO 10004:2018 & ISO 9001:2015 Certified

© 2022 - EDUCBA. ALL RIGHTS RESERVED. THE CERTIFICATION NAMES ARE THE TRADEMARKS OF THEIR RESPECTIVE OWNERS.

EDUCBA
Free Financial Modeling Course

3 Statement Model Creation, Revenue Forecasting, Supporting Schedule Building, & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA Login

Forgot Password?

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

Let’s Get Started

By signing up, you agree to our Terms of Use and Privacy Policy.

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

Loading . . .
Quiz
Question:

Answer:

Quiz Result
Total QuestionsCorrect AnswersWrong AnswersPercentage

Explore 1000+ varieties of Mock tests View more