How banks work


Merchant Banks

Merchant Banks term is very widely used insolution was found to be the accepting of
Europe and refers to their origin asthese traders' bills by one of the older
mercantile houses specializing in the exportwell-established firms, for a consideration
of British products, particularly cottonin the form of commission. Gradually the
cloth, and the import of any products of themerchant became a banker specializing in the
countries where they were established. Thisaccepting  of  bills  for  other  merchants.
involved remitting money from one country to
another, and the bill of exchange on LondonAfterwards, merchant banks (bankers) started
becomes the means of financing the import andissuing foreign bonds for overseas
export trades. The merchants concerned becamegovernments who lacked capital. The issue of
well known as absolutely reliable firms whosethese bonds was only possible if the names of
signature on a bill would make it readilyfamous houses appeared in association with
discountable  on  the  money  market.the issue. The merchant banks (bankers)
arranged for a quotation on the London Stock
The change to banking developed as the numberExchange and handled the issues which were
of firms trading with overseas territoriessubscribed for by British and overseas
increased. Many of these new firms found thatinvestors. Today the issue of "Eurocurrency"
they respect and trust enjoyed by theand "Petrocurrency" bonds is again becoming
well-established houses, so that their billsan important activity for merchant banks.
of exchange were less readily discounted. The



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