1. Nostro Account – Definition : A Nostro account is an account held by a bank in a foreign bank, denominated in the foreign currency. The term means “our account” in Latin, reflecting the perspective of the domestic bank that owns the account. – Example – Commonwealth Bank of Australia (CBA) opens a Nostro account with ICICI Bank in India, denominated in Indian Rupees (INR). This allows CBA to hold INR for transactions without needing to convert Australian Dollars (AUD) each time it needs to send funds to India. – For instance, if a CBA client needs to pay an Indian supplier, CBA can directly use the funds in its Nostro account with ICICI.
2. Vostro Account – Definition :A Vostro account is an account held by a foreign bank at a domestic bank, denominated in the domestic currency. It means “your account,” indicating the perspective of the foreign bank that owns the account. – Example: – ICICI Bank holds a Vostro account for CBA in Australian Dollars (AUD). This means ICICI Bank maintains an account for CBA that allows CBA to conduct transactions in AUD within India. – For example, if an Indian customer wants to pay CBA in AUD, ICICI can facilitate this by debiting the Vostro account.
3. Loro Account -Definition : Loro account is an account maintained by one bank with another bank on behalf of a third party. The term means “their account,” referring to the funds held for another bank. -Example: – If HDFC Bank in India maintains a Loro account with Westpac Banking Corporation in Australia, this account is referred to as a Loro account from HDFC Bank’s perspective. – It represents funds that HDFC can access indirectly through Westpac for transactions involving Australian Dollars without having a direct relationship with Westpac.
