Nostro Account Vs Vostro Account

Vostro Account: Account held by a foreign bank in a domestic bank is called vostro account. For example BANK of Switzerland opening an account in SBI in India, this is vostro account for SBI India.

Nostro Account: Account held by a particular domestic bank in a foreign bank is called Nostro account. Here in the above example given in Vostro account the same account is a Nostro account for BANK OF Switzerland, or if SBI India opens an account in BANK OF Switzerland then that account is a Nostro account for SBI India. Nostro accounts are usually in the currency of the foreign country. This allows for easy cash management because currency doesn't need to be converted.

IN SIMPLE TERMS:

International accounting procedures between Local banks and overseas banks often involve the use of nostro and vostro accounts. A nostro (means "ours" in Latin) account is an account maintained by a Local bank with a foreign bank that allows the Local bank to buy foreign currency. 

A vostro (means "yours" in Latin) account is an account maintained by an overseas bank with a Local bank that allows the overseas bank to purchase Local currency. The system of nostro and vostro accounts facilitates foreign exchange dealings and settlements and allows the settlement of currency transactions between the Country's (Local)Bank and foreign banks.

Example : When X (Buyer) a trader in Base Country wants to purchase $5000 worth of goods by paying cash. Mr.X deposits the cash in his local bank in the country's currency for the corresponding amount ($5000) then a swift message is sent to the corresponding bank in the foreign country where the local bank holds a NOSTRO account requesting the bank to make the payment to Y (Seller) in his local currency i.e. US Dollars. Thus facilitating the trade between X & Y. IF Y wanted to buy something from X then the foreign bank would complete the deal using their VOSTRO account in X's country.