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Types of Foreign Currency Accounts

One of the important questions asked in bank interviews and banking awareness section of various banking exams is about types of Foreign currency accounts.

Types of Foreign Currency accounts

NOSTRO Account

NOSTRO Account means OUR account with YOU in Italian.

If SBI maintained an account with a bank abroad, say Standard Chartered, New York, in dollars – it’ll be known as a Nostro account.

So, it’s SBI’s account with/in Standard Chartered Bank (NY) in their local currency, which is dollars.

VOSTRO Account

VOSTRO Account means YOUR account with US.

If Standard Chartered Bank (NY) had an account with SBI (Mumbai), in our local currency that is Rupees, then this account of Standard Chartered will be called as Vostro Account by SBI (Mum)!

For Standard Chartered (NY), it’ll be a Nostro Account – because for them SBI (Mum) is a foreign bank, in a foreign country and rupees will be foreign currency!

Just give it a twirl – these concepts and it should be clear!

LORRO Account

LORRO Account: THEIR account with THEM!

If a 3rd party bank, in our case, say PNB, wanted to make some foreign currency transaction in $ – but it does not have a Nostro account/or, it does not have enough balance in its Nostro account – what can it do?

Since, SBI has Nostro account with Standard Chartered (NY and in $), it can ask for SBI’s help and use the $ in this account to conduct its transaction successfully.

So in effect, PNB is using SBI’s (THEIR) foreign currency account to transact with Standard Chartered (THEM)!

I hope these three terms are clear to you; pretty important from banking exam/interview point of view – I was asked in one interview and I knew!

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