U.S. Banking History From Last Time • An interest rate swap occurs when banks trade the stream of payments from a pair of assets. The idea is to cheaply convert assets from rate-sensitive to fixed rate or vice versa. Colonial America Consistent with an economy largely composed of self-sufficient farms, the financial sector in colonial America was quite primitive. The English pound was the unit of account but not the medium of exchange. Spanish, French, and Portuguese coins and paper money issued by some of the colonies were the means of payment. The notes of most of the colonies were issued to finance specific projects. They remained in circulation for a short period of time and then were withdrawn. English currency did not circulate because there was a perennial trade deficit with England. As soon as a merchant acquired an English pound, it was used to finance imports from England. European coins were quite scarce. To supplement the supply of specie (gold or silver coins ), wealth and respectable individuals and partnerships issued notes which did circulate as
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This note was uploaded on 11/22/2011 for the course FIN FIN1100 taught by Professor Bradrifkin during the Fall '09 term at Broward College.