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    Question

    An account that a correspondent bank holds on behalf of

    another bank is called:
    A Nostro account Correct Answer Incorrect Answer
    B Vostro Account Correct Answer Incorrect Answer
    C Loro account Correct Answer Incorrect Answer
    D Merchant Banking account Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    A Vostro account is defined as an account that a correspondent bank holds on behalf of another bank. Vostro is a Latin word that means “your”, therefore, a vostro account implies that it is “your account”. An example of such an account would be HSBC vostro account is held by SBI in India. Vostro and Nostro accounts are often confused to be the same. While in essence, it is the same account that is being spoken about, the perspective from which it is being seen matters. In a vostro account, it is the correspondent foreign bank point of view, whereas in a nostro account, it is the point of view of the domestic bank. Vostro accounts are maintained in the domestic currency whereas, nostro accounts in foreign currency. A Loro account is a current account that is maintained by one domestic bank for another domestic bank in the form of a third-party account, unlike nostro and vostro which is bilateral correspondence.

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