The commandable growth in international trade over a few decades has redefined the structure of international financial markets. The augmentation and expansion of trade rests on an effective and efficient financial market. Banks are the backbone of any financial system. Over a period of time, they have conveniently mutated from the traditional role of accepting deposits and lending money to acting as intermediaries in facilitating trade within as well as across countries. To encourage foreign trade, banks have tailored innovative financial instruments, like Letters of Credit, Discounting of Bills and are holding deposits like Nostro and Vostro accounts in foreign countries.

Nostro account is an account that a local bank opens with a bank in the foreign country. It is derived from the Latin word Nostro, which means `ours'. Nostro account means `our account of our money held with you'. The purpose of these accounts is to hold the currencies of that respective country where it is opened to facilitate payments abroad. Hence, these accounts are commonly in foreign currency.

Vostro account, or Loro account, is an account opened by a foreign bank in the country. It is derived from the word Vostro which means `yours'. Vostro account is `your account of money held with us'. Hence, an account opened abroad will be a Nostro account for the domestic country's bank, while it will be a Vostro account for the foreign country's bank. The purpose of both these accounts is to ensure easy and timely cash management during international payments as the currency held in these accounts need not be converted.

Professional Banker Magazine, International Financial Markets, Nostro, Vostro, International Trade, Nostro Bank, Vostro Banks, State Bank of India, SBI, Society for Worldwide Financial Interbank Telecommunication, SWIFT, Deposit Insurance and Credit Guarantee Corp, Reserve Bank of India, RBI, Foreign Banks.