Nostro Account: – Conversion of foreign currency in to home currency is the fundamental of foreign exchange. Therefore, the bank which is authorised to deal in foreign exchange, to stream line the exchange process, keep stock of foreign currency. For this they open a current account in foreign currency in overseas or correspondence bank and this current account is called Nostro Account. The word ‘Nostro’ is a Latin word that stands for ‘Our’. We can say ‘Our account with you’. For example, if ICICI Bank, India opens a current account in $ with Citi Bank, New York. Then it would be a Nostro Account for ICICI Bank, India.
Vostro Account: – This is just opposite of Nostro Account. To maintain the stock of foreign currency an account open by an overseas/ correspondence bank in domestic currency is called Vostro Account. The word ‘Vostro’ is a Latin word that stands for ‘Your’. We can say ‘Your account with us’. For example, if CITI Bank, New York open an account in Rupees in ICICI Bank, India then it would be a Vostro Account for ICICI Bank.
LORO Account: – When the two banks have Nostro Account with a third bank then in this scenario Nostro Account of one bank with third bank would be a Loro Account for another bank. For Example, if Bank of Japan and Bank of India have Nostro Accounts in Bank of America. And if Bank of India need to pay $ to Bank of Japan then he will ask to Bank of America to Debit its Nostro Account and credit the Loro Account of Bank of Japan.