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Understanding Forex Transactions and Interbank Settlement Accounts

Learn how to settle Forex transactions in the interbank market by opening accounts in foreign currency. Nostro, Vostro, and Loro accounts are used for settlement. Example involving SBI, CITI BANK, and HSBC explained. RBI issues 3 types of licenses for Forex dealings in India.

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Understanding Forex Transactions and Interbank Settlement Accounts

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  1. Foreign Exchange FOREX

  2. 7. How to settle Forex Transaction in IB Market For this purpose each party opens account in Foreign currency. Nostro A/c Vostro A/c Loro A/c My a/c with You Your A/c with us Third Party A/c These are A/c for settlement of interbank transactions. Example on the next slide : >

  3. SBI CITI BANK HSBC MumbaiNew York London • SBI will call this A/c as Nostro with respect to CITI BANK. • CITI BANK will call this A/c Vostro with respect to SBI. • SBI will call HSBC as Loro A/c as it Nostro to CITI Bank. Summary : Bank which open cash credit in FC will call it Nostro and Bank where A/c is opened will call it Vostro.

  4. Types of Authorizations ( License) In India RBI Gives 3 types of Licenses for dealing in FOREX Market. License Type of Transaction Category A IB Transaction Category B Money Changer + Export Import Transaction Category C Money Changer

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