Banking Term of the Day: Nostro Accounts🔰

Nostro Account is the account which a bank of a country holds in the bank of another country in the foreign currency and it helps the bank which is having the account in bank of another country by the way of simplifying the exchange and trading process for the foreign currencies.

In simple words, it refers to the foreign bank account established through the domestic bank in the respective country of the currency desired.

🏮Advantages

➖You can pay the money to a third party in your home currency without taking any exchange rate risk.

➖Easy to operate since it is a mere transfer of funds from one account to another in the same bank.

➖Enables to keep funds in foreign currency.

➖Reduces the excessive fluctuation risk in exchange rates since money is directly emitted to the other party without physically been there.

🏮Disadvantages

➖A lesser rate of interest as compared to savings or current account.

➖Generally more expensive since it is a facility provided by the home bank to execute foreign exchange transactions smoothly.

➖Rigorous regulations and laws imposed for the operation of the Nostro account by the federal bank.

➖Open to cyberattacks which can have a huge impact on the cash reserves of the bank if the same are hacked.