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Early inventory management practices in the foreign exchange market: insights from sixteenth-century Lyon

Matringe, Nadia (2021) Early inventory management practices in the foreign exchange market: insights from sixteenth-century Lyon. Economic History Review. ISSN 0013-0117

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Identification Number: 10.1111/ehr.13112

Abstract

Studies of the early modern exchange market have usually focused on the strategies of traders who made profits from differences in exchange rates. This article instead focuses on the inventory management practices of exchange dealers, who traded almost exclusively on behalf of third parties while acting as market makers in the Lyon fairs in the sixteenth century. Using evidence from 1 937 transactions performed by one of the major Lyon banks (Salviati), it uncovers a specific rebalancing technique based on the use of the bill of exchange as a netting instrument. Thanks to a system of limit orders, the Lyon exchange dealers were able to offset order flows, thus minimizing their credit risk while remaining exposed to reputational risk. Such a rebalancing mechanism involved multiple clients and markets and contributed to the clearing of international payments once bills reached maturity. Double-entry bookkeeping both facilitated and limited the use of the bill of exchange as a multilateral netting instrument.

Item Type: Article
Official URL: https://onlinelibrary.wiley.com/journal/14680289
Additional Information: © 2021 Economic History Society
Divisions: Accounting
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HF Commerce > HF5601 Accounting
Date Deposited: 18 Oct 2021 15:06
Last Modified: 09 Nov 2021 08:15
URI: http://eprints.lse.ac.uk/id/eprint/112460

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