The Dutch Republic, or the United Provinces, was a confederal republic that existed from the formal creation of a confederacy in 1581 by several Dutch provinces—seceded from Spanish rule—until the Batavian Revolution of 1795. It was a predecessor state of the first Dutch nation state; the republic was known as the Republic of the Seven United Netherlands, Republic of the Seven United Provinces, the United Provinces, Seven Provinces, Federated Dutch Provinces, or the Dutch Federation. Common names for the Republic in official correspondence were: Republic of the United Netherlands Republic of the United Provinces Republic of the Seven Provinces Republic of the Seven United Netherlands Republic of the Seven United Provinces United Provinces United Provinces of the Netherlands United States of the Netherlands United Regions Seven United Regions Until the 16th century, the Low Countries—corresponding to the present-day Netherlands and Luxembourg—consisted of a number of duchies and prince-bishoprics all of which were under the supremacy of the Holy Roman Empire, with the exception of the county of Flanders, under the Kingdom of France.
Most of the Low Countries had come under the rule of the House of Burgundy and subsequently the House of Habsburg. In 1549 Holy Roman Emperor Charles V issued the Pragmatic Sanction, which further unified the Seventeen Provinces under his rule. Charles was succeeded by King Philip II of Spain. In 1568 the Netherlands, led by William I of Orange, revolted against Philip II because of high taxes, persecution of Protestants by the government, Philip's efforts to modernize and centralize the devolved-medieval government structures of the provinces; this was the start of the Eighty Years' War. In 1579, a number of the northern provinces of the Low Countries signed the Union of Utrecht, in which they promised to support each other in their defence against the Spanish army; this was followed in 1581 by the Act of Abjuration, the declaration of independence of the provinces from Philip II. In 1582, the United Provinces invited Duke of Anjou to lead them. After the assassination of William of Orange on 10 July 1584, both Henry III of France and Elizabeth I of England declined offers of sovereignty.
However, the latter agreed to turn the United Provinces into a protectorate of England, sent the Earl of Leicester as governor-general. This was unsuccessful and in 1588 the provinces became a confederacy; the Union of Utrecht is regarded as the foundation of the Republic of the Seven United Provinces, not recognized by the Spanish Empire until the Peace of Westphalia in 1648. During the Anglo-French war, the internal territory was divided into two groups: the Patriots, who were pro-French and pro-American, the Orangists, who were pro-British; the Republic of the United Provinces faced a series of republican revolutions in 1783–1787. During this period, republican forces occupied several major Dutch cities. On the defence, the Orangist forces received aid from Prussian troops and retook the Netherlands in 1787; the republican forces fled to France, but successfully re-invaded alongside the army of the French Republic, ousting stadtholder William V, abolishing the Dutch Republic, replacing it with the Batavian Republic.
After the French Republic became the French Empire under Napoleon, the Batavian Republic was replaced by the Napoleonic Kingdom of Holland. The Netherlands regained independence from France in 1813. In the Anglo-Dutch Treaty of 1814 the names "United Provinces of the Netherlands" and "United Netherlands" were used. In 1815, it was rejoined with the Austrian Netherlands and Liège to become the Kingdom of the Netherlands, informally known as the United Kingdom of the Netherlands, to create a strong buffer state north of France. On 16 March 1815, the son of stadtholder William V crowned himself King William I of the Netherlands. Between 1815 and 1890, the King of the Netherlands was in a personal union the Grand Duke of the sovereign Grand Duchy of Luxembourg. After Belgium gained its independence in 1830, the state became unequivocally known as the "Kingdom of the Netherlands", as it remains today. During the Dutch Golden Age in the late-16th and 17th centuries, the Dutch Republic dominated world trade, conquering a vast colonial empire and operating the largest fleet of merchantmen of any nation.
The County of Holland was the most urbanized region in the world. In 1650 the urban population of the Dutch Republic as a percentage of total population was 31.7 percent, while that of the Spanish Netherlands was 20.8 percent, of Portugal 16.6 percent, of Italy 14 percent. In 1675 the urban population density of Holland alone was 61 percent, that of the rest of the Dutch Republic 27 percent; the free trade spirit of the time was augmented by the development of a modern, effective stock market in the Low Countries. The Netherlands has the oldest stock exchange in the world, founded in 1602 by the Dutch East India Company, while Rotterdam has the oldest bourse in the Netherlands; the Dutch East-India Company exchange went public in six different cities. A court ruled that the company had to reside in a single city, so Amsterdam is recognized as the oldest such institution based on modern trading principles. While the banking system evolved in the Low Countries, it was incorporated by the well-connected English, stimulating English economic output.
Between 1590 and 1712 the Dutch possessed one of the strongest and fastest navies in the world, allowing for their varied conquests, including breaking the Portuguese s
A swap is a derivative in which two counterparties exchange cash flows of one party's financial instrument for those of the other party's financial instrument. The benefits in question depend on the type of financial instruments involved. For example, in the case of a swap involving two bonds, the benefits in question can be the periodic interest payments associated with such bonds. Two counterparties agree to exchange one stream of cash flows against another stream; these streams are called the legs of the swap. The swap agreement defines the dates when the cash flows are to be paid and the way they are accrued and calculated. At the time when the contract is initiated, at least one of these series of cash flows is determined by an uncertain variable such as a floating interest rate, foreign exchange rate, equity price, or commodity price; the cash flows are calculated over a notional principal amount. Contrary to a future, a forward or an option, the notional amount is not exchanged between counterparties.
Swaps can be in cash or collateral. Swaps can be used to hedge certain risks such as interest rate risk, or to speculate on changes in the expected direction of underlying prices. Swaps were first introduced to the public in 1981 when IBM and the World Bank entered into a swap agreement. Today, swaps are among the most traded financial contracts in the world: the total amount of interest rates and currency swaps outstanding was more than $348 trillion in 2010, according to Bank for International Settlements. Most swaps are traded over-the-counter, "tailor-made" for the counterparties; some types of swaps are exchanged on futures markets such as the Chicago Mercantile Exchange, the largest U. S. futures market, the Chicago Board Options Exchange, IntercontinentalExchange and Frankfurt-based Eurex AG. The Bank for International Settlements publishes statistics on the notional amounts outstanding in the OTC derivatives market. At the end of 2006, this was USD more than 8.5 times the 2006 gross world product.
However, since the cash flow generated by a swap is equal to an interest rate times that notional amount, the cash flow generated from swaps is a substantial fraction of but much less than the gross world product—which is a cash-flow measure. The majority of this was due to interest rate swaps; these split by currency as: Source: "The Global OTC Derivatives Market at end-December 2004", BIS, "OTC Derivatives Market Activity in the Second Half of 2006", BIS, Usually, at least one of the legs has a rate, variable. It can depend on the total return of a swap, an economic statistic, etc.. The most important criterion is that it comes from an independent third party, to avoid any conflict of interest. For instance, LIBOR is published by Intercontinental Exchange; as the International Finance in Practice box suggests, the market for currency swaps developed first. Today, the interest rate swap market is larger. Size is measured by notional principal, a reference amount of principal for determining interest payments.
The exhibit indicates that both markets have grown since 2000, but that the growth in interest rate swap has been by far more dramatic. The total amount of interest rate swaps outstanding increased from $48,768 billion at year-end 2000 to $349.2 trillion by year-end 2009, an increase of 616%. Total outstanding currency swaps increased 417%, from $3,194 billion at year-end 2000 to over $16.5 trillion by year-end 2009. A swap bank is a generic term to describe a financial institution that facilitates swaps between counterparties. A swap bank can be an international commercial bank, an investment bank, a merchant bank, or an independent operator. A swap bank serves as either swap dealer; as a broker, the swap bank does not assume any risk of the swap. The swap broker receives a commission for this service. Today, most swap banks serve as dealers or market makers; as a market maker, a swap bank is willing to accept either side of a currency swap, later on-sell it, or match it with a counterparty. In this capacity, the swap bank therefore assumes some risks.
The dealer capacity is more risky, the swap bank would receive a portion of the cash flows passed through it to compensate it for bearing this risk. The two primary reasons for a counterparty to use a currency swap are to obtain debt financing in the swapped currency at an interest cost reduction brought about through comparative advantages each counterparty has in its national capital market, and/or the benefit of hedging long-run exchange rate exposure; these reasons seem straightforward and difficult to argue with to the extent that name recognition is important in raising funds in the international bond market. The two primary reasons for swapping interest rates are to better match maturities of assets and liabilities and/or to obtain a cost savings via the quality spread differential. In an efficient market without barriers to capital flows, the cost-savings argument through a QSD is difficult to accept, it implies that an arbitrage opportunity exists because of some mispricing of the default risk premiums on different types of debt instruments.
If the QSD is one of the primary reasons for the existence of interest rate swaps, one would expect arbitrage to eliminate it over time and that the growth of the swap market would decrease. Thus, the arbitrage argument does not seem to have much merit. One must rely on an argument of market completeness for the existence and growth of interest rate swaps; that is, all types of debt instruments are not available for all borrowers. Thus, the interest rate swap
Finance is a field, concerned with the allocation of assets and liabilities over space and time under conditions of risk or uncertainty. Finance can be defined as the art of money management. Participants in the market aim to price assets based on their risk level, fundamental value, their expected rate of return. Finance can be split into three sub-categories: public finance, corporate finance and personal finance. Matters in personal finance revolve around: Protection against unforeseen personal events, as well as events in the wider economies Transference of family wealth across generations Effects of tax policies management of personal finances Effects of credit on individual financial standing Development of a savings plan or financing for large purchases Planning a secure financial future in an environment of economic instability Pursuing a checking and/or a savings account Personal finance may involve paying for education, financing durable goods such as real estate and cars, buying insurance, e.g. health and property insurance and saving for retirement.
Personal finance may involve paying for a loan, or debt obligations. The six key areas of personal financial planning, as suggested by the Financial Planning Standards Board, are: Financial position: is concerned with understanding the personal resources available by examining net worth and household cash flows. Net worth is a person's balance sheet, calculated by adding up all assets under that person's control, minus all liabilities of the household, at one point in time. Household cash flows total up all from the expected sources of income within a year, minus all expected expenses within the same year. From this analysis, the financial planner can determine to what degree and in what time the personal goals can be accomplished. Adequate protection: the analysis of how to protect a household from unforeseen risks; these risks can be divided into the following: liability, death, disability and long term care. Some of these risks may be self-insurable, while most will require the purchase of an insurance contract.
Determining how much insurance to get, at the most cost effective terms requires knowledge of the market for personal insurance. Business owners, professionals and entertainers require specialized insurance professionals to adequately protect themselves. Since insurance enjoys some tax benefits, utilizing insurance investment products may be a critical piece of the overall investment planning. Tax planning: the income tax is the single largest expense in a household. Managing taxes is not a question of if you will pay taxes, but when and how much. Government gives many incentives in the form of tax deductions and credits, which can be used to reduce the lifetime tax burden. Most modern governments use a progressive tax; as one's income grows, a higher marginal rate of tax must be paid. Understanding how to take advantage of the myriad tax breaks when planning one's personal finances can make a significant impact in which can save you money in the long term. Investment and accumulation goals: planning how to accumulate enough money – for large purchases and life events – is what most people consider to be financial planning.
Major reasons to accumulate assets include purchasing a house or car, starting a business, paying for education expenses, saving for retirement. Achieving these goals requires projecting what they will cost, when you need to withdraw funds that will be necessary to be able to achieve these goals. A major risk to the household in achieving their accumulation goal is the rate of price increases over time, or inflation. Using net present value calculators, the financial planner will suggest a combination of asset earmarking and regular savings to be invested in a variety of investments. In order to overcome the rate of inflation, the investment portfolio has to get a higher rate of return, which will subject the portfolio to a number of risks. Managing these portfolio risks is most accomplished using asset allocation, which seeks to diversify investment risk and opportunity; this asset allocation will prescribe a percentage allocation to be invested in stocks, bonds and alternative investments.
The allocation should take into consideration the personal risk profile of every investor, since risk attitudes vary from person to person. Retirement planning is the process of understanding how much it costs to live at retirement, coming up with a plan to distribute assets to meet any income shortfall. Methods for retirement plans include taking advantage of government allowed structures to manage tax liability including: individual structures, or employer sponsored retirement plans and life insurance products. Estate planning involves planning for the disposition of one's assets after death. There is a tax due to the state or federal government at one's death. Avoiding these taxes means that more of one's assets will be distributed to one's heirs. One can leave one's assets to friends or charitable groups. Corporate finance deals with the sources of funding and the capital structure of corporations, the actions that managers take to increase the value of the firm to the shareholders, the tools and analysis used to allocate financial resources.
Although it is in principle different from managerial finance which studies the financial management of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms. Corporate f
Foreign exchange market
The foreign exchange market is a global decentralized or over-the-counter market for the trading of currencies. This market determines the foreign exchange rate, it includes all aspects of buying and exchanging currencies at current or determined prices. In terms of trading volume, it is by far the largest market in the world, followed by the Credit market; the main participants in this market are the larger international banks. Financial centers around the world function as anchors of trading between a wide range of multiple types of buyers and sellers around the clock, with the exception of weekends. Since currencies are always traded in pairs, the foreign exchange market does not set a currency's absolute value but rather determines its relative value by setting the market price of one currency if paid for with another. Ex: US$1 is worth X CAD, or CHF, or JPY, etc; the foreign exchange market operates on several levels. Behind the scenes, banks turn to a smaller number of financial firms known as "dealers", who are involved in large quantities of foreign exchange trading.
Most foreign exchange dealers are banks, so this behind-the-scenes market is sometimes called the "interbank market". Trades between foreign exchange dealers can be large, involving hundreds of millions of dollars; because of the sovereignty issue when involving two currencies, Forex has little supervisory entity regulating its actions. The foreign exchange market assists international trade and investments by enabling currency conversion. For example, it permits a business in the United States to import goods from European Union member states Eurozone members, pay Euros though its income is in United States dollars, it supports direct speculation and evaluation relative to the value of currencies and the carry trade speculation, based on the differential interest rate between two currencies. In a typical foreign exchange transaction, a party purchases some quantity of one currency by paying with some quantity of another currency; the modern foreign exchange market began forming during the 1970s.
This followed three decades of government restrictions on foreign exchange transactions under the Bretton Woods system of monetary management, which set out the rules for commercial and financial relations among the world's major industrial states after World War II. Countries switched to floating exchange rates from the previous exchange rate regime, which remained fixed per the Bretton Woods system; the foreign exchange market is unique because of the following characteristics: its huge trading volume, representing the largest asset class in the world leading to high liquidity. As such, it has been referred to as the market closest to the ideal of perfect competition, notwithstanding currency intervention by central banks. According to the Bank for International Settlements, the preliminary global results from the 2016 Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Markets Activity show that trading in foreign exchange markets averaged $5.09 trillion per day in April 2016.
This is down from $5.4 trillion in April 2013 but up from $4.0 trillion in April 2010. Measured by value, foreign exchange swaps were traded more than any other instrument in April 2016, at $2.4 trillion per day, followed by spot trading at $1.7 trillion. The $5.09 trillion break-down is as follows: $1.654 trillion in spot transactions $700 billion in outright forwards $2.383 trillion in foreign exchange swaps $96 billion currency swaps $254 billion in options and other products Currency trading and exchange first occurred in ancient times. Money-changers were living in the Holy Land in the times of the Talmudic writings; these people used city stalls, at feast times the Temple's Court of the Gentiles instead. Money-changers were the silversmiths and/or goldsmiths of more recent ancient times. During the 4th century AD, the Byzantine government kept a monopoly on the exchange of currency. Papyri PCZ I 59021, shows the occurrences of exchange of coinage in Ancient Egypt. Currency and exchange were important elements of trade in the ancient world, enabling people to buy and sell items like food and raw materials.
If a Greek coin held more gold than an Egyptian coin due to its size or content a merchant could barter fewer Greek gold coins for more Egyptian ones, or for more material goods. This is why, at some point in their history, most world currencies in circulation today had a value fixed to a specific quantity of a recognized standard like silver and gold. During the 15th century, the Medici family were required to open banks at foreign locations in order to exchange currencies to act on behalf of textile merchants. To facilitate trade, the bank created the nostro account book which contained two columned entries showing amounts of foreign and local currencies. During the 17th century, Amsterdam maintained an active Forex market. In 1704, foreign exchange took place between agents acting in the interests of the Kingdom of Englan
A stock exchange, securities exchange or bourse, is a facility where stock brokers and traders can buy and sell securities, such as shares of stock and bonds and other financial instruments. Stock exchanges may provide for facilities the issue and redemption of such securities and instruments and capital events including the payment of income and dividends. Securities traded on a stock exchange include stock issued by listed companies, unit trusts, pooled investment products and bonds. Stock exchanges function as "continuous auction" markets with buyers and sellers consummating transactions via open outcry at a central location such as the floor of the exchange or by using an electronic trading platform. To be able to trade a security on a certain stock exchange, the security must be listed there. There is a central location at least for record keeping, but trade is less linked to a physical place, as modern markets use electronic communication networks, which give them advantages of increased speed and reduced cost of transactions.
Trade on an exchange is restricted to brokers. In recent years, various other trading venues, such as electronic communication networks, alternative trading systems and "dark pools" have taken much of the trading activity away from traditional stock exchanges. Initial public offerings of stocks and bonds to investors is done in the primary market and subsequent trading is done in the secondary market. A stock exchange is the most important component of a stock market. Supply and demand in stock markets are driven by various factors that, as in all free markets, affect the price of stocks. There is no obligation for stock to be issued through the stock exchange itself, nor must stock be subsequently traded on an exchange; such trading may be off over-the-counter. This is the usual way that bonds are traded. Stock exchanges are part of a global securities market. Stock exchanges serve an economic function in providing liquidity to shareholders in providing an efficient means of disposing of shares.
The idea of debt dates back to the ancient world, as evidenced for example by ancient Mesopotamian city clay tablets recording interest-bearing loans. There is little consensus among scholars as to; some see the key event as the Dutch East India Company's founding in 1602, while others point to earlier developments. Economist Ulrike Malmendier of the University of California at Berkeley argues that a share market existed as far back as ancient Rome. One of Europe's oldest stock exchanges is the Frankfurt Stock Exchange established in 1585 in Frankfurt am Main. In the Roman Republic, which existed for centuries before the Empire was founded, there were societates publicanorum, organizations of contractors or leaseholders who performed temple-building and other services for the government. One such service was the feeding of geese on the Capitoline Hill as a reward to the birds after their honking warned of a Gallic invasion in 390 B. C. Participants in such organizations had partes or shares, a concept mentioned various times by the statesman and orator Cicero.
In one speech, Cicero mentions "shares that had a high price at the time". Such evidence, in Malmendier's view, suggests the instruments were tradable, with fluctuating values based on an organization's success; the societas declined into obscurity in the time of the emperors, as most of their services were taken over by direct agents of the state. Tradable bonds as a used type of security were a more recent innovation, spearheaded by the Italian city-states of the late medieval and early Renaissance periods. While the Italian city-states produced the first transferable government bonds, they did not develop the other ingredient necessary to produce a fully-fledged capital market: the stock market in its modern sense. In the early 1600s the Dutch East India Company became the first company in history to issue bonds and shares of stock to the general public; as Edward Stringham notes, "companies with transferable shares date back to classical Rome, but these were not enduring endeavors and no considerable secondary market existed."
The VOC, formed to build up the spice trade, operated as a colonial ruler in what is now Indonesia and beyond, a purview that included conducting military operations against the wishes of the exploited natives and of competing colonial powers. Control of the company was held by its directors, with ordinary shareholders not having much influence on management or access to the company's accounting statements. However, shareholders were rewarded well for their investment; the company paid an average dividend of over 16% per year from 1602 to 1650. Financial innovation in Amsterdam took many forms. In 1609, investors led by Isaac Le Maire formed history's first bear market syndicate, but their coordinated trading had only a modest impact in driving down share prices, which tended to remain robust throughout the 17th century. By the 1620s, the company was expanding its securities issuance with the first use of corporate bonds. Joseph de la Vega known as Joseph Penso de la Vega and by other variations of his name, was an Amsterdam trader from a Spanish Jewish family and a prolific writer as well as a successful businessman in 17th-century Amsterdam.
His 1688 book Confusion of Confusions explained the workings of the city's stock market. It was the earliest book about stock trading and inner workings of a stock market, taking the form of a dialogue between a merchant, a shareholder and a philosopher, the book described a market, sophisticated but prone to excesses, de la Vega of
A commodity market is a market that trades in the primary economic sector rather than manufactured products. Cocoa and sugar. Hard commodities are mined, such as oil. Investors access about 50 major commodity markets worldwide with purely financial transactions outnumbering physical trades in which goods are delivered. Futures contracts are the oldest way of investing in commodities. Futures are secured by physical assets. Commodity markets can include physical trading and derivatives trading using spot prices, forwards and options on futures. Farmers have used a simple form of derivative trading in the commodity market for centuries for price risk management. A financial derivative is a financial instrument whose value is derived from a commodity termed an underlier. Derivatives are either over-the-counter. An increasing number of derivatives are traded via clearing houses some with Central Counterparty Clearing, which provide clearing and settlement services on a futures exchange, as well as off-exchange in the OTC market.
Derivatives such as futures contracts, Exchange-traded Commodities, forward contracts have become the primary trading instruments in commodity markets. Futures are traded on regulated commodities exchanges. Over-the-counter contracts are "privately negotiated bilateral contracts entered into between the contracting parties directly". Exchange-traded funds began to feature commodities in 2003. Gold ETFs are based on "electronic gold" that does not entail the ownership of physical bullion, with its added costs of insurance and storage in repositories such as the London bullion market. According to the World Gold Council, ETFs allow investors to be exposed to the gold market without the risk of price volatility associated with gold as a physical commodity. Commodity-based money and commodity markets in a crude early form are believed to have originated in Sumer between 4500 BC and 4000 BC. Sumerians first used clay tokens sealed in a clay vessel clay writing tablets to represent the amount—for example, the number of goats, to be delivered.
These promises of time and date of delivery resemble futures contract. Early civilizations variously used rare seashells, or other items as commodity money. Since that time traders have sought ways to standardize trade contracts. Gold and silver markets evolved in classical civilizations. At first the precious metals were valued for their beauty and intrinsic worth and were associated with royalty. In time, they were used for trading and were exchanged for other goods and commodities, or for payments of labor. Gold, measured out became money. Gold's scarcity, its unique density and the way it could be melted and measured made it a natural trading asset. Beginning in the late 10th century, commodity markets grew as a mechanism for allocating goods, labor and capital across Europe. Between the late 11th and the late 13th century, English urbanization, regional specialization and improved infrastructure, the increased use of coinage and the proliferation of markets and fairs were evidence of commercialization.
The spread of markets is illustrated by the 1466 installation of reliable scales in the villages of Sloten and Osdorp so villagers no longer had to travel to Haarlem or Amsterdam to weigh their locally produced cheese and butter. The Amsterdam Stock Exchange cited as the first stock exchange, originated as a market for the exchange of commodities. Early trading on the Amsterdam Stock Exchange involved the use of sophisticated contracts, including short sales, forward contracts, options. "Trading took place at the Amsterdam Bourse, an open aired venue, created as a commodity exchange in 1530 and rebuilt in 1608. Commodity exchanges themselves were a recent invention, existing in only a handful of cities."In 1864, in the United States, corn and pigs were traded using standard instruments on the Chicago Board of Trade, the world's oldest futures and options exchange. Other food commodities were added to the Commodity Exchange Act and traded through CBOT in the 1930s and 1940s, expanding the list from grains to include rice, mill feeds, eggs, Irish potatoes and soybeans.
Successful commodity markets require broad consensus on product variations to make each commodity acceptable for trading, such as the purity of gold in bullion. Classical civilizations built complex global markets trading gold or silver for spices, cloth and weapons, most of which had standards of quality and timeliness. Through the 19th century "the exchanges became effective spokesmen for, innovators of, improvements in transportation and financing, which paved the way to expanded interstate and international trade."Reputation and clearing became central concerns, states that could handle them most developed powerful financial centers. In 1934, the US Bureau of Labor Statistics began the computation of a daily Commodity price index that became available to the public in 1940. By 1952, the Bureau of Labor Statistics issued a Spot Market Price Index that measured the price movements of "22 sensitive basic commodities whose markets are presumed to be among the first to be influenced by changes in economic conditions.
As such, it serves as one early indication of impending changes in business activity." A commodity index fund is a fund whose assets are invested in financial instruments based on or linked to a commodity index. In just about every case the index is in fact a Commodity Futures Index; the first such index was the Commodity Research Bureau Index, which began in 1958. Its construction made; the first investable commodity futures
A bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either indirectly through capital markets. Due to their importance in the financial stability of a country, banks are regulated in most countries. Most nations have institutionalized a system known as fractional reserve banking under which banks hold liquid assets equal to only a portion of their current liabilities. In addition to other regulations intended to ensure liquidity, banks are subject to minimum capital requirements based on an international set of capital standards, known as the Basel Accords. Banking in its modern sense evolved in the 14th century in the prosperous cities of Renaissance Italy but in many ways was a continuation of ideas and concepts of credit and lending that had their roots in the ancient world. In the history of banking, a number of banking dynasties – notably, the Medicis, the Fuggers, the Welsers, the Berenbergs, the Rothschilds – have played a central role over many centuries.
The oldest existing retail bank is Banca Monte dei Paschi di Siena, while the oldest existing merchant bank is Berenberg Bank. The concept of banking may have begun in ancient Assyria and Babylonia, with merchants offering loans of grain as collateral within a barter system. Lenders in ancient Greece and during the Roman Empire added two important innovations: they accepted deposits and changed money. Archaeology from this period in ancient China and India shows evidence of money lending. More modern banking can be traced to medieval and early Renaissance Italy, to the rich cities in the centre and north like Florence, Siena and Genoa; the Bardi and Peruzzi families dominated banking in 14th-century Florence, establishing branches in many other parts of Europe. One of the most famous Italian banks was the Medici Bank, set up by Giovanni di Bicci de' Medici in 1397; the earliest known state deposit bank, Banco di San Giorgio, was founded in 1407 at Italy. Modern banking practices, including fractional reserve banking and the issue of banknotes, emerged in the 17th and 18th centuries.
Merchants started to store their gold with the goldsmiths of London, who possessed private vaults, 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 bailee; the goldsmiths began to lend the money out on behalf of the depositor, which led to the development of modern banking practices. The goldsmith paid interest on these deposits. Since the promissory notes were payable on demand, the advances to the goldsmith's customers were repayable over a longer time period, this was an early form of fractional reserve banking; the promissory notes developed into an assignable instrument which could circulate as a safe and convenient form of money backed by the goldsmith's promise to pay, allowing goldsmiths to advance loans with little risk of default. Thus, the goldsmiths of London became the forerunners of banking by creating new money based on credit; the Bank of England was the first to begin the permanent issue of banknotes, in 1695.
The Royal Bank of Scotland established the first overdraft facility in 1728. By the beginning of the 19th century a bankers' clearing house was established in London to allow multiple banks to clear transactions; the Rothschilds pioneered international finance on a large scale, financing the purchase of the Suez canal for the British government. The word bank was taken Middle English from Middle French banque, from Old Italian banco, meaning "table", from Old High German banc, bank "bench, counter". Benches were used as makeshift desks or exchange counters during the Renaissance by Jewish Florentine bankers, who used to make their transactions atop desks covered by green tablecloths; the definition of a bank varies from country to country. See the relevant country pages under for more information. Under English common law, a banker is defined as a person who carries on the business of banking by conducting current accounts for his customers, paying cheques drawn on him/her and collecting cheques for his/her customers.
In most common law jurisdictions there is a Bills of Exchange Act that codifies the law in relation to negotiable instruments, including cheques, this Act contains a statutory definition of the term banker: banker includes a body of persons, whether incorporated or not, who carry on the business of banking'. Although this definition seems circular, it is functional, because it ensures that the legal basis for bank transactions such as cheques does not depend on how the bank is structured or regulated; the business of banking is in many English common law countries not defined by statute but by common law, the definition above. In other English common law jurisdictions there are statutory definitions of the business of banking or banking business; when looking at these definitions it is important to keep in mind that they are defining the business of banking for the purposes of the legislation, not in general. In particular, most of the definitions are from legislation that has the purpose of regulating and supervising banks rather than regulating the actual business of banking.
However, in many cases the statutory definition mirrors the common law one. Examples of statutory definitions: "banking business" means the business of receiving money on current or deposit account and collecting cheques drawn by or paid in by customers, the making