International accounting procedures between Local banks and overseas banks often involve the use of nostro and

vostro accounts. A nostro (means "ours" in Latin) account is an account maintained by a Local bank with a foreign bank that allows the Local bank to buy foreign currency. A vostro (means "yours" in Latin) account is an account maintained by an overseas bank with a Local bank that allows the overseas bank to purchase Local currency. The system of nostro and vostro accounts facilitates foreign exchange dealings and settlements and allows the settlement of currency transactions between the Country's (Local)Bank and foreign banks. Example : When X (Buyer) a trader in Base Country wants to purchase $5000 worth of goods by paying cash. Mr.X deposits the cash in his local bank in the country's currency for the corresponding amount ($5000) then a swift message is sent to the corresponding bank in the foreign country where the local bank holds a NOSTRO account requesting the bank to make the payment to Y (Seller) in his local currency i.e. US Dollars. Thus facilitating the trade between X & Y. IF Y wanted to buy something from X then the foreign bank would complete the deal using their VOSTRO account in X's country.
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It helps to recall that the term account refers to a record of transactions, whether current, past or future, and whether in money, or shares, or other countable commodities. Originally a bank account just meant the record kept by a banker of the money they were

and savings accounts. then a vostro in credit must have a negative sign. Thus in many banks a credit entry on an account ("CR") is regarded as negative movement. Speaking from the bank's point-of-view: • • A nostro is our account of our money. [edit] Typical usage Nostro accounts are mostly commonly used for currency settlement. That record kept by the customer is also an account. a vostro account with a credit balance (i. With the advent of computerised accounting. and how that changed as the customer made deposits and withdrawals (the money itself probably being in the form of specie. of the money the bank is holding for them. but banks in A will only handle payments in AUD. Conventions A bank counts a nostro account with a credit balance as a cash asset in its balance sheet. so they can check for errors by the bank. if a nostro in credit has a positive sign. although there is no "you" in the sense of an external customer. the money is still "held by us". where a bank or other financial institution needs to hold balances in a currency other than its home accounting unit. When that customer is another bank. including personal or corporate checking. such as gold and silver coin). trading and suspense accounts.holding on behalf of a customer. etc. held by us Note that all "bank accounts" as the term is normally understood. and instructs all counter-parties to . For example: First National Bank of A does some transactions (loans. loan. They also regard as vostro purely internal funds such as treasury. This allows for a reconciliation by summing all accounts to zero (a trial balance) .e. and a debit ("DR") is positive . a deposit) is a liability. Some customers will keep their own records of their transactions. and a vostro with a debit balance (a loan) is an asset.the reverse of usual commercial accounting conventions. for instance. Conversely. The terms nostro and vostro remove the potential ambiguity when referring to these two separate accounts of the same balance and set of transactions. that is. nostros and vostros just need to have opposite signs within any one bank's accounting system. foreign exchange. since they also keep other accounts (of the money they are holding for their customers) there is a need to clearly differentiate between these two types of accounts.) in USD. held by you A vostro is our account of your money.the basic premise of double-entry bookkeeping. So FNB of A opens a USD account at foreign bank Credit Mutuel de B. are treated as vostros by the bank.

or a clearing account with the third bank that the cheque was written on.000. for reconciliation.000.000. in reality C may not have an account with FNBA's corresponding bank.000. they record the following transaction: USD Account in name 2. CMB's record of the same account is the vostro account.000. X Branch".000. FNBA maintains its own records of that account.settle transactions in USD at "account no. FNBA will make the following entries in its own accounting system: (Internal) FX AUD trading account USD Nostro at CMB (FNBA's nostro) 1. Now.000.000 to C (a counterparty who has an AUD account with FNBA. this is its nostro account.000 DR AUD Account in name of C (Internal) FX USD trading account 1.000. at CMB. such as a Teller's receiving account. and a USD account with CMB) for a net consideration of USD2.000.000 CR Over at CMB. In this case CMB will make entries on several other accounts.] [edit] . and will make settlement by cheque or some form of EFT.000 DR 2.000 CR 2. 123456 in name of FNBA. FNBA sells AUD1.000 CR [This is somewhat simplified.000 of C DR USD Account in name of FNBA (CMB's vostro) 2.

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