by Jessie Romero – EconFocus, Federal Reserve Bank of Richmond
In ancient Babylon, around 1800 B.C., merchants transporting their goods to markets in the Mediterranean and Persian Gulf had to worry about thieves, pirates, and sinking ships. So they developed a system to share the risk of transport with their investors: Merchants paid a premium above the going interest rate in exchange for a promise that the lender would cancel the loan in the event of a mishap.
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