Strategic Financial Management

Nostro A/C ; Vostro A/C & LORO Account

Nostro A/C: [Ours Account with You]
Nostro Account is a Current account maintained by a domestic bank/dealer with a foreign bank in foreign currency.
For example, Current Account of SBI Bank (an Indian bank) with Swiss Bank in Swiss Franc (CHF) currency is a Nostro
A/C.

India Switzerland

Indian Bank Swiss Bank

Nostro Account of
Indian bank
Indian Bank opened a Current Account with
Swiss Bank in CHF currency. This Bank account
is known as Nostro Account for Indian.

Vostro A/C: [Yours Account with us]

Vostro A/C is a Current account maintained by a foreign bank with domestic bank in Rupee currency.
For example: Account of Swiss bank in India with SBI in Rupee () Currency.

India Switzerland

Indian Bank Swiss Bank

Vostro Account of
Swiss bank
Swiss Bank opened a Current Account with
Indian Bank in  currency. This Bank account
is called Vostro Account by Indian.

Loro A/C: [Our Account of their money with you]

Loro Account is a Current Account Maintained by one Domestic Bank on behalf of other domestic bank in foreign bank
in foreign currency. In other word Loro Account is a Nostro Account for one bank who opened the bank and Loro
Account for other bank who refers first one account.
For Example: SBI opened Current Account with Swiss bank. If PNB refers that account of SBI for its correspondence,
then it is called Loro Account for PNB and it is Nostro Account for SBI.

India Switzerland
SBI Bank opened a Current Account
with Swiss Bank in CHF currency.
Indian Bank (SBI) Swiss Bank
Nostro Account of
Indian bank

Indian Bank (PNB)

PNB Bank refers Account of SBI for its transaction
then it is called Loro Account for PNB

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Maintaining Exchange position and Nostro A/C [Nov-05] [RTP-Nov-08]

General information:
- Currency of Switzerland is Swiss Franc (CHF)
- “Zurich” is a city of Switzerland
- Telegraphic Transfer or Telex Transfer , often abbreviated to TT, is an electronic means of transferring
funds overseas

Exchange position: (Think it as Bank book)

Exchange position (for CHF currency) of an Indian bank/dealer will affect by:
- Purchase/sale of foreign currency, (the purchase/sale of currency may be spot or forward)
- Issue/cancellation of demand draft,
- Purchase/sale of Bills receivable,
- Remittance of foreign currency [Remember that Indian bank do not remit foreign currency (say CHF) in Nostro account from India. All receipt in
Swiss franc (CHF) and all payment/remittances in CHF will be made through Nostro account maintained with Switzer land bank]

Cash Position (Nostro A/C): (As bank Reconciliation statement: think it as Pass book which is maintained by bank)
Nostro A/C of an Indian bank/dealer maintained with Switzerland bank will affect by:
- Spot Purchase/Sale of foreign currency (CHF) (Forward Purchase/Sale of CHF do not affect Nostro A/C because there is no delivery of
currency as on today)
- Receipt/payment in CHF.
Note: Spot purchase/Sales of CHF affects both exchange position as well as Nostro A/C (Cash Position). However, forward
purchase/sale affects only the exchange position.

Transaction through demand draft (DD)

At the time of issuing DD Indian Bank will decrease its exchange position i.e. Bank book (to understand)

Nostro A/C will decrease only after presenting DD by Mr. S to his banker
If before presenting DD it will cancel, then Indian Bank will increase its exchange position.

India Switzerland
Think all transaction
for Indian Bank and
Indian Bank not for Mr. S and Mr. B Swiss Bank

Nostro Account of
3 Indian bank
2
DD in CHF 6 5
 1 CHF
Import DD
Mr. Buyer Mr. Seller

4
Pay by way of DD

After step-3 Indian bank will reduce exchange position.

After step-6 Nostro Account of Indian bank will decrease.
If DD canceled due to some reason the step 6 & 5 will not applicable and Mr Buyer will get money back and
Indian bank will increase Exchange position. No effect on Nostro A/C

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Strategic Financial Management

Transaction through Bills Receivable (B/R):

. Bank buys bills receivable

India Switzerland

Present B/R at Maturity

Indian Bank 5 Swiss Bank

Nostro Account of
4 Indian bank
3

B/R in CHF  Export 6

1 CHF
Invoice in CHF
Mr. Seller Mr. Buyer

2
Received by way of B/R

After Step-3 Indian bank will increase exchange position.

After Step-5 & 6, Nostro A/C of Indian bank will increase.
If B/R dishonor, Indian bank will decrease exchange position and in this case there will be no effect on Nostro
Account.

Cancellation of forward Contract:

Suppose a person enters forward contract on date “A” (i.e. today) for delivery on 3 month time. Due to some reason
contract cannot be performed and hence he approaches for cancellation. We are discussing the position for 4 different
situations.
3 month
2 month

Today before due date Due date after due date (Due date + 15 days)

Originally entered F. Contract for due date

1 3 4
2

Applicable Rate for Cancellation

1. Cancellation at 2 month time (i.e.

before due date)
2. Cancellation at due date
3. Cancellation after due date
4. Automatic cancellation

Email: ca_npsah@icai.org Page 2.20