A vostro account is an account held by one party, managed by another, and maintained for the owner’s benefit. It is useful in forex and stock trading. A parrot account is held by one party, managed by another, and audited by a third party. Both help keep ownership issues clear.
A vostro bank account is an account that one party holds for another party. In a vostro account, the administrators do not actually own the money. They must maintain this account in good standing on behalf of its owner. Vostro’s account managers, often banks, frequently pay interest to other parties for the use of their money.
Vostro accounts are just a way of talking about who owns the principal invested in them. For a customer who deposits money into a bank account, that account is a “we” account, meaning it belongs to that person. From the bank’s point of view, it is a “vostro” account, which means that it is not the bank’s own money, but the customer’s, and the bank has a responsibility for good accounting of the customer’s money. This makes sense, since “voster” in Latin or “vuestra” in Spanish means “yours.”
A vostro account can be useful in the Forex, or currency, industries, where money must “go to market” in foreign markets and be exchanged for foreign currency, or alternatively, held as foreign currency in that destination market. Parties that have vostro accounts are acting on behalf of their customers to obtain returns. This is also true in a wide variety of stock or stock option trading situations, where a broker is the party holding the vostro account for clients.
When contrasting the nostro and vostro accounts, those learning finance find that these designations help distinguish different types of banking systems and information about who owns the money invested. In addition to this type of bead, there is another, again based on Latin/Italian etymology, called the “parrot” bead. This is also useful for talking about who owns a certain bank account.
A parrot account is an account seen from the point of view of a third party. It is not “ours” or “yours”, but “theirs”. A parrot account is an account held by one party, managed by a second party, and audited or evaluated by an outside interest. Loro accounts are most often used in syndicated financing, and are not common in many parts of the financial industry.
Although these types of accounts seem complicated, they are actually quite simple. Tagging accounts helps keep ownership issues straight. It also helps to incentivize the account holder to practice transparent and competent bookkeeping.
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