Nostro Account

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Definition of 'Nostro Account '

A nostro account is a bank account held by a bank in a foreign currency on behalf of a customer. The nostro account is denominated in the currency of the foreign bank. The nostro account is used to facilitate transactions between the customer and the foreign bank.

The nostro account is a liability for the customer's bank. The customer's bank is responsible for the funds in the nostro account and must make payments to the foreign bank when the customer makes a transaction.

The nostro account is a useful tool for customers who want to make transactions in a foreign currency. The nostro account allows customers to avoid the exchange rate risk associated with converting funds between currencies.

The nostro account is also a useful tool for banks. The nostro account allows banks to earn interest on the funds held in the account.

There are a few risks associated with nostro accounts. The most significant risk is the foreign exchange risk. The value of the funds in the nostro account can fluctuate due to changes in the exchange rate.

Another risk associated with nostro accounts is the credit risk. The foreign bank may default on its obligations to the customer's bank. This could result in the customer's bank losing the funds in the nostro account.

Nostro accounts are a valuable tool for customers and banks. However, it is important to understand the risks associated with nostro accounts before using them.

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