1) The document discusses various types of foreign currency accounts like Nostro, Vostro, and Loro accounts that banks maintain with each other. 2) It explains key concepts like two-way quotations in the interbank market, direct and indirect currency quotations, and American and European quotation styles. 3) Interbank deals refer to foreign exchange transactions between banks, including cover deals to hedge customer transactions and trading to profit from expected exchange rate changes. Swap deals involve simultaneously buying and selling the same currency for different maturities.

1. FOREIGN CURRENCY ACCOUNTS , QUOTATIONS IN
INTERBANK MARKETS &
INTERBANK DEALS
KARE RAMAKRISHNA
18382022

2. T
Y
P
E
S
OF
A/C’S
LORO
(their money)
VASTRO
(your money with us)
NOSTRO
(our money with you)

3. N
O
S
T
R
O
• In Latin, ‘Nostro’ means “our account with you”.
• Nostro account is the account maintained by an
Indian bank with an overseas/foreign bank.
• For example, PNB may maintain an account with
Citibank, New York. The account would be in the
host country’s currency, i.e., in US dollar.
• All foreign exchange transactions are routed through
Nostro accounts by Indian Bank.

5. • The account would be maintained in home currency
where account is opened, i.e., Indian Rupees.
• A foreign bank, say Citibank, New-York, may open Rupee
account with State Bank of India.
• In Latin, ‘Vostro’ means “your account with us”.
V
O
S
T
R
O

7. L
O
R
0
• Loro account’ word stands for ‘Their account with
you’, in Latin.
• Say, State Bank of India is maintaining an account with
Citibank, New York. When Syndicate Bank of India
likes to refer this account during the course of
correspondence with Citibank, it would refer to it as
‘Loro Account’.

9. • Quotations in Interbank market

10. TWO WAY QUOTATION
• Quotation in interbank called
two way quotation
• It means the rate quoted by the
market maker will indicate 2
prices
At which willing to Buy
At which willing to sell
• Ex. SBI quote its rate for US$
: 1USD = 71.50/72.00

11. DIRECT QUOTATIONS
• Gives the units of currency of domestic
country per unit of a foreign currency
• Price of foreign currency is quoted in
terms of home currency
• In this system variable units of home
currency equivalent to a fixed unit of
foreign currency are quoted.
• Domestic currency is quoted currency
• For E.g.: – USD = 70.152/ 71.152

12. INDIRCT QUOTATIONS
• Gives the units of currency of foreign
country per unit of the domestic currency
• Price of home currency is quoted in terms of
foreign currency
• In this system variable units of foreign
currency equivalent to a fixed unit of home
currency are quoted.
• Foreign currency is the quoted currency
• For E.g. – INR100 = 1.5USD/ 1.7USD

13. AMERICAN AND EUROPEAN QUOTATIONS
• An American currency quotation is a quotation in the foreign exchange markets whereby the value
of the American dollar is stated as a per-unit measure of a foreign currency. This type of quotation
shows how much U.S. currency it takes to purchase one unit of foreign currency.
 An American currency quotation is how much U.S. currency it takes to buy one unit of foreign
currency.
 In a currency pair, the first currency listed is one unit, and the listed rate is how much of the
second currency it takes to buy the single unit of the first.
 Currencies are also referred to as direct or indirect quotes, with a direct quote being how much
domestic currency it takes to buy one unit of foreign currency.

14. EXAMPLE
• An American currency quote would be US$0.85 per C$1. This
shows that it will take 0.85 U.S. dollars to purchase a single unit
of Canadian currency. To purchase C$1,000, it would cost
US$850. The currency pair involved is the CAD/USD.

15. EUROPEAN QUOTATIONS
• The opposite of an American currency quotation is a European currency
quotation where the foreign currency is the stated per-unit measure of the U.S. dollar.
• Using the Canadian dollar again as an example, assume a rate of C$1.40 per US$1.
This explains that it will take 1.40 Canadian dollars to purchase a single U.S.
dollar. In this case, the pair involved flips to the USD/CAD.
• In a currency pair, the first currency listed is a single unit, and the attached number or
quote shows how much of the second currency it takes to buy that single unit of the
first.

16. INTERBANK DEALS

17. • Interbank deals refer to purchase and sale of foreign exchange between the banks.
• In other words it refers to the foreign exchange dealings of a bank in the interbank markets. The
interbank market is the top-level foreign exchange market where banks exchange different
currencies. The banks can either deal with one another directly, or through electronic brokering
platforms. The interbank market is an important segment of the foreign exchange market. It is a
wholesale market through which most currency transactions are channeled. It is mainly used for
trading among bankers. The three main constituents of the interbank market are
 The spot market
 The forward market
 SWIFT (Society for World-Wide Interbank Financial Telecommunications)
Interbank deals

18. COVER DEALS
• Purchase and sale of foreign currency in the market undertaken to acquire or dispose of
foreign exchange required or acquired as a consequence of its dealings with its customers is
known as the ‘cover deal’. The purpose of cover deal is to insure the bank against any
fluctuation in the exchange rates.
• In quoting a rate to the customer the bank is guided by the interbank rate to which it adds or
deducts and arrives at the rate it quotes to the customer. This is done on the assumption that
immediately on purchase from the customer the bank would sell the foreign exchange to
interbank market at market buying rate.

19. TRADING
• Trading refers to the purchase and sale of foreign exchange in the market other than
to cover bank’s transactions with the customers. The purpose may be to gain on the
expected changes in exchange rates. In India the scope for trading although still
subject to controls is getting wider the relaxations being made in the control
regulations.

20. FUNDING OF VOSTRO ACCOUNTS
• Vostro means ‘your account with us’. Funding of nostro account of the bank is done by
realization of foreign exchange in the relevant currency purchased by the bank. If sales exceed
purchases to avoid overdraft in the nostro account, the bank would purchase the requisite foreign
exchange in the interbank market and arrange for its credit to the nostro account.
• Some of the foreign banks who maintain vostro accounts with the bank may fund the account by
arranging remittance through some other bank. Or the foreign bank concerned may request the
Indian bank to credit its rupee account and in compensation credit the bank in India would quote
the rate at which it could margin may not be taken for such transactions.

21. SWAP DEALS
• A swap deal is a transaction in which the bank buys and sells the specified foreign
currency simultaneously for different maturities. Thus a swap deal may involve:
• i) There should be simultaneous purchase and sale of the same foreign currency of
same value for different maturities and
• ii) The deal should have been concluded with the distinct understanding between the
banks that is a swap deal.