Module: | MODULE A: INTERNATIONAL BANKING
Q4: Read the following statements concerning the specific correspondent banking accounts used to facilitate international foreign exchange settlements. Identify the correct combination.
Statement 1. A Nostro account is a foreign currency account maintained by an Indian bank with a correspondent bank located abroad, literally translating to Our account with you.
Statement 2. If an American bank maintains an Indian Rupee account with a commercial bank located in Mumbai, the Indian bank refers to this specific account as a Vostro account, translating to Your account with us.
Statement 3. A Loro account refers to a domestic currency account maintained strictly by the central bank to monitor sovereign debt limits, translating to The sovereign account.
Statement 2. If an American bank maintains an Indian Rupee account with a commercial bank located in Mumbai, the Indian bank refers to this specific account as a Vostro account, translating to Your account with us.
Statement 3. A Loro account refers to a domestic currency account maintained strictly by the central bank to monitor sovereign debt limits, translating to The sovereign account.
✅ Correct Answer: A
🎯 Quick Answer:
Option A is correct because Statement III misdefines the Loro account.Structural Breakdown: Statement I is correct.
Nostro means Ours.
For the State Bank of India, its US Dollar account held at Citibank in New York is its Nostro account, meaning Our money with you.
Statement II is correct.
Vostro means Yours.
For the State Bank of India, the Indian Rupee account that Citibank maintains with them in Mumbai is a Vostro account, meaning Your money with us.
Statement III is completely incorrect.
Loro means Theirs.
It does not relate to the central bank or sovereign debt.
A Loro account is used when a third bank refers to an account held by one bank with another.
For example, if Bank of Baroda refers to the account that State Bank of India holds with Citibank, Bank of Baroda calls it a Loro account, meaning Their account with them.
Causal Reasoning: These distinct terms are critical operational tools to ensure that wire transfer messages and reconciliation departments know exactly whose ledger is being credited or debited.