Answer: C. accounts which are generally held with a foreign bank on behalf of a domestic bank
Nostro in Latin literally means ‘ours’. Hence, Nostro account points at – “Our account with you”.
Take for example a bank in India, say Bank of Maharashtra (BoM), gets a lot many remittances and trade related money sent home from UAE. However, BoM does not have a banking license in the UAE.
So BoM reaches out to a local bank of UAE, say United Emirates Bank, and asks them to open a bank account in BoM’s name, in UAE’s local currency dirham. On this, Bank of Maharashtra can do all sorts of transactions as if they were themselves present in the UAE and operating this account.
Nostro accounts are generally held in a foreign country (with a foreign bank), by a domestic bank (from our perspective, our bank). It obviates that account is maintained in that foreign currency.
In our example, Bank of Maharashtra’s account with United Emirates Bank in UAE.
- What are Nostro and Vostro accounts in banking? How are they used in payments and settlements?
- NOSTRO, VOSTRO, LORO Accounts
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