Nostro and vostro accounts

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Nostro and vostro (Italian, from Latin, noster and voster; English, 'ours' and 'yours') are
accounting terms used to distinguish an account held for another entity from an account another
entity holds. The entities in question are almost always, but need not be, banks.

Origins :
It helps to recall that the term account refers to a record of transactions, whether current, past or
future, and whether in money, or shares, or other countable commodities. Originally a bank
account just meant the record kept by a banker of the money they were holding on behalf of a
customer, and how that changed as the customer made deposits and withdrawals (the money
itself probably being in the form of specie, such as gold and silver coin).

Some customers will keep their own records of their transactions, for instance, so they can check
for errors by the bank. That record kept by the customer is also an account, of the money the
bank is holding for them. When that customer is another bank, since they also keep other
accounts (of the money they are holding for their customers) there is a need to clearly
differentiate between these two types of accounts.

The terms nostro and vostro remove the potential ambiguity when referring to these two separate
accounts of the same balance and set of transactions. Speaking from the bank's point-of-view:

 A nostro is our account of our money, held by you

 A vostro is our account of your money, held by us

Note that all "bank accounts" as the term is normally understood, including personal or corporate
checking, loan, and savings accounts, are treated as vostros by the bank. They also regard as
vostro purely internal funds such as treasury, trading and suspense accounts; although there is no
"you" in the sense of an external customer, the money is still "held by us".

[edit] Accounting
[edit] Conventions

A bank counts a nostro account with a credit balance as a cash asset in its balance sheet.
Conversely, a vostro account with a credit balance (i.e. a deposit) is a liability, and a vostro with
a debit balance (a loan) is an asset. Thus in many banks a credit entry on an account ("CR") is
regarded as negative movement, and a debit ("DR") is positive - the reverse of usual commercial
accounting conventions.
With the advent of computerised accounting, nostros and vostros just need to have opposite signs
within any one bank's accounting system; that is, if a nostro in credit has a positive sign, then a
vostro in credit must have a negative sign. This allows for a reconciliation by summing all
accounts to zero (a trial balance) - the basic premise of double-entry bookkeeping.

[edit] Typical usage

Nostro accounts are mostly commonly used for currency settlement, where a bank or other
financial institution needs to hold balances in a currency other than its home accounting unit.

For example: First National Bank of A does some transactions (loans, foreign exchange, etc.) in
USD, but banks in A will only handle payments in AUD. So FNB of A opens a USD account at
foreign bank Credit Mutuel de B, and instructs all counter-parties to settle transactions in USD at
"account no. 123456 in name of FNBA, at CMB, X Branch". FNBA maintains its own records of
that account, for reconciliation; this is its nostro account. CMB's record of the same account is
the vostro account.

Now, FNBA sells AUD1,000,000 to C (a counterparty who has an AUD account with FNBA,
and a USD account with CMB) for a net consideration of USD2,000,000. FNBA will make the
following entries in its own accounting system:

(Internal) FX AUD trading account 1,000,000 DR AUD Account in name of C 1,000,000 CR

USD Nostro at CMB (FNBA's 2,000,000 (Internal) FX USD trading
2,000,000 CR
nostro) DR account

Over at CMB, they record the following transaction:

USD Account in name of 2,000,000 USD Account in name of FNBA (CMB's 2,000,000
C DR vostro) CR

[This is somewhat simplified; in reality C may not have an account with FNBA's corresponding
bank, and will make settlement by cheque or some form of EFT. In this case CMB will make
entries on several other accounts, such as a Teller's receiving account, or a clearing account with
the third bank that the cheque was written on.]

[edit] Related expressions

Pestel Analysis

PESTEL Analysis
In this part all factors, which influence the company as a whole but are out of their direct control
including wider social, political and economic factors shall be explained. The analysis of those
factors of the macro-environment is therefore often known as PESTEL analysis.3

PESTEL is an acronym for the six key strategic areas of change: Political, Economic, Social,
Technological, Ecological and Legal and a technique for understanding the various external
influences on a business4. Each single area has the potential to fundamentally change the
competitive environment your company operates in.
Due to the fact that the airline industry is very much influenced by changes taking place in the
environment and has undergone rapid and dramatic changes during the last decades, this analysis
is especially important for Ryanair.5

A detailed matrix of all single points of the areas of change – Political, Economic, Social,
Technological, Ecological and Legal – can be found

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in the appendix. Furthermore the PESTL Analysis is made within the important points of the
airline industry.

Ryanair targets in the first instance, as the largest and most successful of Europe’s low fare
airlines, leisure travellers and the visiting friends and relatives segment of the market. Describing
itself as “lowest cost scheduled airline” means basing the airline’s financial strategy on the
average number of seats sold per flight in place of on the revenue made per sold seat. As a result
every environmental issue, which either affects basic costs of flights or affects the likeability of
customer to book a flight is important for Ryanair.6

The past decades have brought many events, which affected flight security in the eyes of the
customer. 11th of Septembers and “Sars” have shown that global dangers heavily affect the air-
travel. As an European airline and following an effective promotional strategy Ryanair sales
increased irrespective of this danger. However the unstable...