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With reference to the Vostro account, consider the following statements:
1. Indian importers can pay for their imports in INR into Vostro account.
2. A Vostro account is an account that a correspondent bank holds on behalf of another bank.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'C'. Can you explain this answer?
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Most Upvoted Answer
With reference to the Vostro account, consider the following statement...
The Finance Ministry was scheduled to meet with stakeholders including banks and the Ministries of External Affairs and Commerce to discuss ways to promote international trade in rupee instead of the United States dollar.
- On July 11 this year, the RBI issued a circular saying it had decided “to put in place an additional arrangement for invoicing, payment, and settlement of exports/ imports in INR”.
- The idea, the RBI said, was to “promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in INR”.
- While the move to allow trade settlements between India and other countries in rupees was seen to primarily benefit trading with Russia, it was also expected to help check dollar outflow and slow the depreciation of the rupee to a “very limited extent”.
Way it would work
- To settle trade transactions with any country, banks in India would open Vostro accounts of correspondent bank/s of the partner country for trading. Indian importers can pay for their imports in INR into these accounts.
- These earnings from imports can then be used to pay Indian exporters in INR.
- A Vostro account is an account that a correspondent bank holds on behalf of another bank — for example, HSBC Vostro account is held by SBI in India.
Hence both statements are correct.
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With reference to the Vostro account, consider the following statement...
Explanation:
Statement 1: Indian importers can pay for their imports in INR into Vostro account.
The Vostro account is a type of account that a bank holds on behalf of another bank. In this case, the Vostro account is held by the Indian bank for the benefit of the foreign bank. The purpose of this account is to facilitate the settlement of international transactions.
When an Indian importer makes a payment for their imports, they can choose to pay in INR (Indian Rupees) into the Vostro account held by the foreign bank. This allows for the efficient transfer of funds between the two banks and simplifies the payment process for the importer.
Therefore, statement 1 is correct.
Statement 2: A Vostro account is an account that a correspondent bank holds on behalf of another bank.
A Vostro account is indeed an account that a correspondent bank holds on behalf of another bank. The term "Vostro" is derived from the Latin word meaning "yours". In this context, it refers to the account that is held by the correspondent bank on behalf of the foreign bank.
The correspondent bank acts as a custodian of the Vostro account and performs various services on behalf of the foreign bank, such as processing payments, facilitating trade transactions, and providing liquidity. The correspondent bank maintains detailed records of all transactions related to the Vostro account and provides regular reports to the foreign bank.
Therefore, statement 2 is correct.
Conclusion:
Both statements 1 and 2 are correct. Indian importers can pay for their imports in INR into the Vostro account, and a Vostro account is indeed an account that a correspondent bank holds on behalf of another bank.
Statement 1: Indian importers can pay for their imports in INR into Vostro account.
The Vostro account is a type of account that a bank holds on behalf of another bank. In this case, the Vostro account is held by the Indian bank for the benefit of the foreign bank. The purpose of this account is to facilitate the settlement of international transactions.
When an Indian importer makes a payment for their imports, they can choose to pay in INR (Indian Rupees) into the Vostro account held by the foreign bank. This allows for the efficient transfer of funds between the two banks and simplifies the payment process for the importer.
Therefore, statement 1 is correct.
Statement 2: A Vostro account is an account that a correspondent bank holds on behalf of another bank.
A Vostro account is indeed an account that a correspondent bank holds on behalf of another bank. The term "Vostro" is derived from the Latin word meaning "yours". In this context, it refers to the account that is held by the correspondent bank on behalf of the foreign bank.
The correspondent bank acts as a custodian of the Vostro account and performs various services on behalf of the foreign bank, such as processing payments, facilitating trade transactions, and providing liquidity. The correspondent bank maintains detailed records of all transactions related to the Vostro account and provides regular reports to the foreign bank.
Therefore, statement 2 is correct.
Conclusion:
Both statements 1 and 2 are correct. Indian importers can pay for their imports in INR into the Vostro account, and a Vostro account is indeed an account that a correspondent bank holds on behalf of another bank.
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With reference to the Vostro account, consider the following statements:1. Indian importers can pay for their imports in INR into Vostro account.2. A Vostro account is an account that a correspondent bank holds on behalf of another bank.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer?
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