What is a Nostro Account?
Updated: February 05, 2014 at 4:34 AM
Nostro Account Definition. A Nostro Account is an account denominated in a foreign currency established through your local bank at a bank in the respective country of the currency desired. The terms "nostro" and "vostro" are derived from Latin terms meaning "ours" and "yours" respectively. A nostro account is our account in a different country and a vostro account is a foreigner's account in our country. A nostro account is always in foreign Currency while a vostro account is in Home currency. (thanks P Goyal for the fb comment)
For example, if you live in the United States and ask you local bank to set up a Euro account for you, they will most likely open a "Nostro Account" with a correspondent agent bank in the European Union that they have a banking relationship with for that specific purpose. The Euro bank will set up the account, but it is not a typical checking account. These accounts are treated differently on the books of the bank. Transactions to and from these accounts may only be wire transfers to ensure identity credentials are monitored and that special handling is used. Generally, companies will use these types of accounts when they often either buy or sell in another country but do not have a physical presence that would afford them usage of a typical checking account arrangement.
Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.