LORO ACCOUNT English meaning

To do foreign exchange transactions in a foreign country, you must understand the Nostro account along with VOSTRO and LORO accounts with their difference. Vostro accounts allow banks to expand their global reach, offer services in foreign currencies, reduce transaction costs, mitigate currency risks, and provide convenient access to local banking infrastructure and services in foreign markets. Nostro is a word derived from the Latin term for “ours.” These accounts are frequently used to facilitate foreign exchange and trade transactions in an efficient way. Most large commercial banks worldwide hold nostro accounts in every country with a convertible currency.

The Importer or Exporter are bound to follow these rules otherwise it be come a punishable offence and come into the category of smuggling. The custom department of that country looks after the each and every goods which comes in and goes out from the country.In India FEMA (Foreign Exchange Management Act) is the act which formed to regulate loro account meaning the Foreign trade. RBI is the authority to regulate the act and keep their eyes on each and every foreign dealings which also helps to calculate the foreign exchange reserves in the country. Exchange rate is the value of one country’s currency in terms of another country’s currency.Exchange rates may be either fixed or floating.

The Nostro account, Vostro account, and Loro account, are three very important terms when it comes to understanding foreign exchange. You must clearly understand these three main terms if you receive or send money to your loved ones in a foreign country. Vostro account balances are generally not insured by deposit insurance schemes since they represent liabilities of the respondent bank held on behalf of the correspondent bank. However, deposit insurance coverage may vary by jurisdiction, so it’s important to understand the applicable regulations and safeguards in your specific country.

  1. Vostro is a reference to “yours” and refers to “your money that is on deposit at our bank.” A vostro account is like any other account held by a bank.
  2. All foreign exchange transactions are routed through Nostro accounts.
  3. Nostro accounts with debit balances are considered cash assets.
  4. For the SBI, this will be a Nostro account, and for Citigroup, it is a Vostro Account.

The Nostro account is the record of the bank that has money on deposit at another bank. These accounts are often used to simplify settlements of trade and foreign exchange transactions. https://1investing.in/ Nostro accounts differ from standard demand deposit bank accounts in that they are usually held by financial institutions, and they are denominated in foreign currencies.

A vostro account is an account a correspondent bank holds on behalf of another bank. These accounts are an essential aspect of correspondent banking in which the bank holding the funds acts as custodian for or manages the account of a foreign counterpart. For example, if a Spanish life insurance company approaches a U.S. bank to manage funds on the Spanish life insurer’s behalf, the account is deemed by the holding bank as a vostro account of the insurance company. While corresponding with the foreign bank maintaining an account with it, the Indian bank would refer to the account as Vostro account, meaning ‘your account with us’. For example, a bank in Middle East may open an account with an Indian bank, and draw drafts on the account. The Indian bank on presentment of the drafts to it would pay to the debit of the foreign bank’s account with it.

Strategic Cost management SYBMS Question Bank 2019

Vostro accounts facilitate international trade, correspondent banking relationships, foreign currency transactions, and access to local banking services. In relation to correspondent banking, it is an account that one bank holds on behalf of another bank (the customer bank), usually in another country (in a foreign currency). It is a current account maintained by a domestic bank for another domestic bank that acts as a third-party account (loro). In other words, it is a bank’s nostro account in any foreign country but is maintained on behalf of a domestic bank (the customer bank regards this account as its nostro account). A nostro account refers to an account that a bank holds in a foreign currency at another bank. Nostros, a term derived from the Latin word for “ours,” are frequently used to facilitate foreign exchange and trade transactions.

What Types of Transactions Are Conducted Through Vostro Accounts?

People’s Bank of India is having an account with Chasemanhattan Bank, London. When the Janata Bank of India likes to refer to this account while corresponding  with the Chasemanhattan Bank, it would refer to it as Loro account meaning ‘their account with you’. As it appears from the name, we are here to make you understand the terms of finance in very simple language. FINANCE CRACKER provides updates regarding comprehensive knowledge and expertise in various aspects of finance. Usefulness of any foreign Currency can be had only if it is converted in to home currency because, foreign currency is not used or acceptable in India if we take example of India. For giving usefulness to any foreign currency the said currency needs to be converted in to the home currency.

The terms nostro and vostro are used to differentiate between the two sets of accounting records kept by each bank. “Nostro” and “vostro” are two different terms used to describe the same bank account. The terms are used when one bank has another bank’s money on deposit, typically in relation to international trading or other financial transactions.

How Does a Vostro Account Benefit Banks?

Vostro accounts are one of the ways that foreign banks manage their foreign currency exposure and facilitate international transactions for their customers. Loro account is taken from the Italian word “loro,” which means “their”- i.e., a third party account (an account held by others). In general, it is used to imply dealing with or through third parties. If two foreign banks have euro accounts at the same London bank, one of them might request the London bank to transfer an amount of money from its nostro account to the loro account of the other bank.

The opposite term “vostro accounts”—derived from the Latin word for “yours”—is how a bank refers to the accounts that other banks have on their books denominated in the holding bank’s home currency. Home Currency of one country is foreign currency for other country. Conversion of foreign currency in to home currency is the fundamental of foreign exchange. Therefore in order to put through the foreign exchange transaction, the bank which is authorized to deal in foreign exchange, maintains an account with its overseas Bank to keep stocks of foreign currencies.

Strong finance professional with a Master of Business Administration (M.B.A.), CFP-Certified Financial Planning. Presently working with ISME-International School of Management Excellence, reputed Business School in Bangalore as Faculty-Finance. Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

To use a foreign currency, that particular currency must be exchanged into home currency. The three major accounts related to foreign accounts are the Nostro account, Vostro account, and Loro account. LORO account is the opposite, which means an account that one bank holds with another or third-party banks.

Normally, such account is a current account in the books of the overseas Bank. For example, an Indian bank authorized to deal in foreign exchange maintain an account  with overseas bank in USA in US Dollar  such account  maintained in the foreign currency at foreign center by Indian bank is said as ‘Nostro Account’ . So the ‘Nostro Account’ of the Indian bank with its branch/correspondents in USA is said as ‘Our Accounts with You’. Nostro Accounts are typically utilised to facilitates foreign trade and foreign exchange transactions.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top