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Unformatted text preview: Application Problems Chapter 14 & 15 BA206 Macroeconomics Robert McGill 29 Oct 2011 Application Problems 1 1.1 Discuss the various ways in which London goldsmiths functioned as early banks. In the early 17th century, merchants preferred to store their gold with the goldsmiths of London, who possessed private vaults, and charged a fee for that service. In exchange for each deposit of precious metal, the goldsmiths issued receipts certifying the quantity and purity of the metal they held as a trust. These receipts could not be transferred to other parties as a form of payment. Gradually the goldsmiths took up the function of relending the gold on behalf of a depositor and also developed modern banking practices; promissory notes were issued for money deposited which by custom and/or law was a loan to the goldsmith. The goldsmith charged no fee, or even paid interest on these deposits. Since the promissory notes were payable on demand, and the advances (loans) to the goldsmith's customers were repayable over a longer time period, this was...
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This note was uploaded on 11/16/2011 for the course BUSINESS BA206 taught by Professor Various during the Spring '11 term at Grantham.
- Spring '11