What Is a Nostro Account?

A nostro account refers to a bank account held in a foreign country by a domestic bank, denominated in the currency of the overseas country. Nostros, a term derived from the Latin word for "ours," is frequently used to facilitate foreign exchange and trade transactions. The opposite term, "vostro accounts"—derived from the Latin word for "yours"—is how a bank refers to the accounts that overseas banks have on their books denominated in the holding bank's home currency.

How a Nostro Account Works

A nostro account and a 澳洲幸运5官方开奖结果体彩网:vostro account refer to the same en🐓tity, but from a different perspective. For example, Bank X has an account with Bank Y in Bank Y's home currency. To Bank X, that is a nostro, meaning "our account on your books," while to Bank Y, it is a v꧋ostro, meaning "your account on our books."

These accounts facilitate international 澳洲幸运5官方开奖结果体彩网:transactions and settle transactions that hedge 澳洲幸运5官方开奖结果体彩网:exchange-rate risk.

Before the advent of the euro as a currency for financial settlements on Jan. 1, 1999, banks needed to hold nostro accounts in all the countries that now use the euro.

Since that date, one nostro account for the entire eurozone has been sufficient. If a country were to leave the e𓃲urozone, either voluntarily or involuntarily, banks would need to re-establish nostros in ⛦that country in its new currency to continue making payments.

Example of a Payment Using a Nostro Account

The following example illustrates the payment process using a nostro account. 🙈Bank A, in the U.S., enters into a spot foreign-exchange contract to buy British pounds from Bank B, in Sweden.

On the settlement date, Bank B must deliv🅘er pounds from its nostro account in the U.K. to the nostro account of Bank A, also in the U.K. On the same day,🔥 Bank A must pay dollars in the U.S. to Bank B's nostro account.

Limitations on Nostro Accounts

The 澳洲幸运5官方开奖结果体彩网:central banks of many developing countries limit the buying and selling of their currencies, usually to control imports, exports, and the exchange rate. Banks generally d🅷on't hold nostro accounts in those countries, as there is little or no foreign exchange business.

When a bank needs to make a payment in a country where it doesn't hold a nostro account, it can use a bank with a 澳洲幸运5官方开奖结果体彩网:correspondent relationship to make the payment on its behalf.

The Bottom Line

Nostro accounts simplify the process of exchanging and trading in foreign currencies. They ease transactions conducted in another 𒈔currency while helping hedge exchange-rate risk. These accounts are often held in the major convertible currencies: U.S. or Canadian dollars, the British pound, the euro, or the Japanese yen.

The opposite term, vostro account, is the way in which a bank refers to the accounts that foreign banks have on their books that are denominated in the holding bank's home currency. The bank holding a nostro or vostro account may be called the "facilitator" bank. Nostro accounts differ from standard 澳洲幸运5官方开奖结果体彩网:demand deposit accounts because they are denominated in foreign currenci𝓰es. Also, only businesses or governments have nostro or vostro accounts; they aren't offered in the same wa𓆉y to individual account holders.