Shakespeare makes use of two distinct settings for The Merchant of Venice. Venice, as in Shakespeare's time, is the city of commerce where wealth flows in and out with each visiting ship. Venice is also a cosmopolitan city at the frontier of Christendom, beyond which lies Asia, Africa, and the Ottoman Empire. Society in Venice is a predominantly male world, where the single female, Jessica, is locked up in her house, and can only escape in disguise as a male.
Belmont, on the other hand, is the home of Portia and her mysterious caskets. It is a place of romance and festivity to which the victorious Christians retire at the end of the play. Like the forests in As You Like It and A Midsummer Night's Dream, Belmont is an idealized "green world" that is removed from the ruthlessness of the real world. Unlike Venice, it is controlled by women (though Portia's dead father lingers).
Venice is an exciting, cosmopolitan setting for the play because it's a hotspot for trade. While Jews had been legally banned from England since 1290, Venice had laws in place to protect non-Venetian traders who supported the city's economic well-being. When the Jewish moneylender Shylock seeks his bond, for example, Antonio admits:
The Duke cannot deny the course of law.
For the commodity that strangers have
With us in Venice, if it be denied,
Will much impeach the justice of his state;
Since that the trade and profit of the city
Consisteth of all nations (3.3.29-34)
In other words, the Duke can't make an exception for Antonio by denying Shylock his rights; it would have a negative affect on the city's livelihood.
Although people from all kinds of nationalities and religious backgrounds did business in Venice, Shakespeare's setting is chock-full of religious strife, especially between Christians and Jews. This culminates in a big legal showdown over whether or not Shylock should be able to collect his pound of flesh from Antonio. We should also point out that, although...