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