Foreign Exchange Trade: A Typical Business Between Florence Branch And The Medici Bank

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To understand the concept of foreign exchange trade better, an example of a typical business between the Florence branch and the London branch of the Medici Bank would be helpful. “A merchant would borrow 1000 florins (Florence’s currency) from Giovanni’s Florentine branch where the exchange rate is 40 pence (England’s currency) per florin. With that money, the merchant buys goods in Italy that he knows are in high demand in London. Upon arriving in London, he sells his goods and receives English pence. He is now prepared to pay back his debt of 40,000 pence, pocketing any excess he made as profit. The Medici branch in London can lend out the 40,000 pence to a London merchant returning to Florence. However, in London the exchange rate is only 36 pence per florin. So the loan for 40,000 pence is …show more content…
Within 30 years, this small bank grew into one of the strongest, wealthiest, and the most important banks in all of Europe. With numerous branches all over Europe they were able to influence the economy of Europe while amassing personal wealth and power. With their large fortune, they spent lavishly on art and architecture propelling the progress of Europe as they did their own. Under the leadership of Cosimo, great painters such as Ghiberti, Brunelleschi, Donatello, Alberti, Fra Angelico, and Ucello were commissioned to produce some of the world’s greatest art masterpieces. Cosimo was influential in making Florence the cultural center of Europe and the birthplace of Humanism. Today the throngs of tourists who flock to admire the beauty of Florence owe their pleasure to the Medici involvement in the structure of the city. This paper has attempted to demonstrate that through the unique organization and structuring of the Medici Bank, great fortunes were made and lost but without a doubt, the Medici created the unique and effective banking system that the world had seen in the 15th

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