Banking and Finance

Choose the Correct Answer

Correct Answer : Option c

Explanation
Statement 1 is correct: The word “NOSTRO” is derived from the Latin word “Ours”. A NOSTRO account is a bank account that a bank holds in a foreign country’s currency at another bank in that country. This type of account is used by banks to facilitate foreign exchange transactions and to hold funds that belong to their customers who have accounts in foreign currencies.To understand better, XYZ Bank in Australia wants to conduct business in India and needs to hold Indian Rupee, it can open a NOSTRO account with Bank ABC in India. Bank XYZ can then use the NOSTRO account to facilitate transactions in Indian Rupee without having to convert the Australian dollar into Indian Rupee every time it needs to make a transaction.

Statement 2 is correct: The word “VOSTRO” is derived from the Latin word “Yours”. A VOSTRO account is a type of bank account that is held by a foreign bank at a domestic bank in the domestic bank’s currency. In other words, a VOSTRO account is a foreign bank’s account at a domestic bank. To understand better, XYZ Bank in India wants to conduct business with Bank ABC in Australia and needs to hold Australian dollars, Bank XYZ can open a VOSTRO account with Bank ABC. Bank ABC would hold the Australian dollars on behalf of Bank XYZ and Bank XYZ could use the VOSTRO account to facilitate transactions in Australian dollars without having to convert Indian Rupee into Australian dollars every time it needed to make a transaction.