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Vostro Account

Candlefocus Editor
A Vostro account acts as a bridge between a domestic bank and an overseas correspondent. The main purpose of having a Vostro account is to keep the two banks at an arms-length relationship by isolating the funds. As an example, a Vostro account is created when a domestic bank requires Foreign Currency (FC) from its correspondent in order to service the needs of its domestic customers. The foreign correspondent thus opens a Vostro account at the domestic bank and transfers FC funds to the Vostro account. This gives the domestic bank the necessary funds it needs to service its customers.

The use of Vostro accounts is important for banks as it helps them reduce exposure to cross-border risks. It prevents the disruption of services that arise due to the lack of foreign currency in a financial crisis. Using a Vostro account is also more cost-effective than maintaining a large portfolio of foreign currencies in multiple currencies.

The primary benefit of Vostro accounts to customers of the domestic bank is easy access to international funds. With the use of Vostro accounts, customers can easily make payments abroad with access to multiple currencies. This can be performed quickly and cost effectively when compared to other traditional methods.

Overall, Vostro accounts are important for banks, enabling easy access to international funds for customers, and reducing exposure to risks. Through its effective use, banking institutions are better able to meet the demand for ongoing global finance needs.

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