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Renaissance Banking

Renaissance Banking. Lesson 21. Questions:. How would someone from Venice, Italy pay someone hundreds of miles away in London, England, in the 15 th century? Couriers Horseback What problems might arise from sending money over many miles via horseback or ship?

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Renaissance Banking

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  1. Renaissance Banking Lesson 21

  2. Questions: • How would someone from Venice, Italy pay someone hundreds of miles away in London, England, in the 15th century? • Couriers • Horseback • What problems might arise from sending money over many miles via horseback or ship? • Dangerous to transport money over long distances • Long time to transport • Theft or loss of the money

  3. Activity #1 Now you will participate in an activity that shows how banks long ago sent money from place to place. Please line up across the room from corner to corner. Two students will represent the bankers One end of the line is Venice, the other end of the line will be London Two students will represent the payer from Venice, the other will the one receiving the payment in London.

  4. After Round 1 of Exchange Questions: • The bill of exchange has reached London. Who should it be delivered to? • The banker in London • What will the banker in London do to the bill of exchange? • Pay the payee the equivalent of 480 ducats in pounds of sterling, which is 98 pounds based on the exchange rate implied on the bill of exchange.

  5. After Round 2 of Exchange Questions: • Did any money actually travel from Venice to London? • No • How will the two bankers be able to settle up now that the banker in Venice has received the money and the banker in London has paid out the money? • A transaction from London to Venice may cancel out the one that just took place • Using their record books, the two bankers can transfer money between them.

  6. Activity #1 Cont. • Just as money today is not always coin or paper, but is sometimes just an electronic record in their bank account, during the 15th century bankers kept record books and could move money from one place to another using debits and credits in their books. • Why is it safer to send the bill of exchange from Venice to London instead of actual money? • Thieves are less likely to take it because it is a bill of exchange rather than actual money

  7. Reading Activity Questions: • What services did the bankers of the Renaissance provide? • Loans to kings, nobles, and business people. • Using their branches and debit/credit system, they made it possible to send money. • Money changing services • Why did the banks of the 1300’s go out of business? • They had to make large loans, particularly to kings of England and Naples, that were not repaid. • What were the Medici known for in addition to being successful bankers? • They were powerful politicians and important patrons of the arts.

  8. Reading Activity Questions Cont… • Why were the banks not allowed to charge interest? • The Roman Catholic Church had declared the charging of interest illegal • To whom did the pawnbrokers make most of their loans? • The poor people of the time.

  9. What are Banks? • Bank s: Institutions where some people save money and earn interest, and other people borrow money and pay interest. • Banks and other financial institutions channel funds from savers to borrowers and investors and make profits in the process. • While today’s banks provide services to many individuals and businesses, during the Renaissance bankers’ primary customer's were royalty and nobles from across Europe as well as powerful business people. Ordinary people would not likely have used pawnbrokers and money changers.

  10. Banks Cont.. • Banks today make their money by taking deposits – money put into a bank account. • They may or may not pay interest- money paid regularly, at a particular rate for the use of borrowed money • Unlike the Renaissance, the charging of interest is not illegal today. • Banks also make loans- money given to someone on the promise to repay in the future • The interest banks charge on loans if higher than the interest it pays on deposits. The difference is revenue (profit) for banks.

  11. Bankers of the Renaissance Simulation • Working in groups of not more than 4, you will simulate being bankers during the Renaissance. • Each group will get one deck of cards. • With the deck: please discard the jokers and divide the remaining 52 cards into two piles: • Hearts and Diamonds • Spades and Clubs • Each student in each group is a banker. What does each banker need to do in order to start business? • Take in deposits

  12. Bankers of the Renaissance Simulation cont… • Shuffle your pile of spades and clubs and place it face down. Then, each student is to draw five cards from the top of the spades and clubs pile. • On the “Activity 21.3” worksheet record the rank (number, face or ace) of each card you drew in the DRAWN CARD column of the “Deposits” table at the top of the worksheet. Each card is to be recorded on a separate line in the table . • Face cards and aces are 10 • For each card you will multiply the rank of the card times 10. • Enter the value of each of your cards in the first blank of the equation shown on each line of the CALCULATE CARD VALUE column of the deposits table.

  13. Bankers of the Renaissance Simulation cont… • Complete the multiplication on each line of the “Deposits” to the value of each card in ducats. • Add the value of all five cards in order to get the total amount deposited.

  14. Bankers of the Renaissance Simulation Questions: • Why do people today deposit money in a bank? • Safekeeping, to save for the future, to earn interest, and write checks • What are banks likely to do with the money that they receive in deposits? • Make loans, invest • Why do people today want to make loans? • To buy a house • Go to college • Buy a car • Start a business

  15. Bankers of the Renaissance Simulation • Now its time to make some loans with your money! • Refer to Activity 21.4 • The student (s) with the most money after making loans will be proclaimed the winner of the activity.

  16. Bankers of the Renaissance Simulation Questions: • Do you have enough money in your bank to make four loans? • Why is knowing the riskiness of a loan more important to a banker? • More risky loans are less likely to pay back • Less risky loans are more likely to be repaid • What will happen to the bank if it makes a loan and it doesn’t get repaid? • The bank will be out the money it loaned, but it will still owe the depositors • Should you loan out all of the money that you took in as deposits? • If you loan out all of the money that you took in as deposits, there will be no money left in the bank to pay out if one of the depositors comes in to take out money.

  17. Bankers of the Renaissance Simulation Questions: After choosing loans • Did anyone make only one loan? • Did anyone make only very low risk loans? Why? • Did anyone make all very high risk loans? Why?

  18. Bankers of the Renaissance Simulation cont.. • In real life a number of factors determine whether or not a loan would actually be repaid. Also, the repayment of each of the loans that they have made would depend on the actual behavior of the borrower. • In this activity, the repayment of loans and the amount of interest earned will be determined by drawing cards from the pile of hearts and diamonds. • Due to usury laws at the time bankers could not charge interest , but for the sake of this activity, we are going to use the modern practice of loans being repaid with interest.

  19. Bankers of the Renaissance Simulation cont… • Shuffle your pile of hearts and diamonds and place if face down • Each student is to draw one card from the top of the hearts and diamonds pile and record the rank of this card in the RESULT CARD DRAWN column for the first loan in their table. • Use the information from the LOANS (front of activity 21.3 wksht) table to determine the result for the loan. • Record your result in the OUTCOME column • Continue to draw cards and record the outcome for each loan that you made.

  20. Bankers of the Renaissance Simulation cont… • Add the amount of loans repaid and any interest and enter the amount after the statement “3 Total amount of loans repaid plus interest”. • Answer questions 4 & 5 based on your results.

  21. Bankers of the Renaissance Simulation Follow- Up Questions • How many of you gained by making loans? • How many of you lost money by making loans? • If you lost money and you continue to lose money in future periods, what will happen to your bank? • If you lost money by making loans in this round, how might you change the way you make loan decisions going forward? • Did some of your loans that were considered less risky not get repaid? • Why might that happen in real life? • What eventually happened to the banks during the Renaissance? • Why were the banks forced to close? • Were there any loans that seemed like bad deals for the bank?

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