(2) Countries have different standards of value, some taking gold, others silver. A fixed par of exchange only exists between countries using the same standard. If one use gold, the other silver, the par of exchange will vary in the ratio of the relative value of gold to silver; for when gold is the standard, silver is merchandise, and coined only as a subsidiary currency at an artificially high value, and when silver is the standard, gold is merchandise with a variable premium. Since Germany adopted the gold standard in 1871, most of the chief states of Europe and America have tended towards the single gold valuation, established in England since 1816. This has caused silver to depreciate and disorganised the exchanges based upon the silver standard (i.e. exchanges between gold-using and silver-using countries). The relation between a gold- and a silver-using country is really one of barter, but the disadvantages of such a condition of things were formerly minimised by certain countries using a double valuation, i.e. using gold and silver at a fixed ratio. But when France largely abolished this valuation, this safety-valve was lost, and there have been rapid fluctuations in silver and the silver exchanges. 5. The Foreign Exchanges. The foreign exchanges are the rates at which the money of one country is exchanged into that of others. The intrinsic value of £1 in French money is 25.221 francs and is called the Mint Par of Exchange, but this is very different from the market value of £1 in francs. This value is constantly fluctuating up and down, and the study of exchanges involves the study of the causes of these and similar fluctuations. If A owes 25,000 francs in Paris, he can transmit gold pounds and exchange it there for French money or he can buy francs in London and transmit them, FOREIGN EXCHANGES. 221 in either case there will be the cost of transmission, and it is obvious that a cheque or bill could be sent much more cheaply. Hence a debtor always tries to buy bills or cheques on the country or place in which his creditor resides. When they are plentiful or the demand is small, he can get these bills more cheaply than when they are scarce or the demand is brisk. In the former case he will not have to pay for cheques so much as the Mint par, but in the latter he will have to pay more. There are however limits to the fall and rise of exchanges, determined by the cost of transmitting bullion. It costs about 10 centimes per 25 francs to send gold to Paris; thus no man would buy cheques at 25.12 francs per £ because by transmitting gold he would get (25-22 – 0·10 =) 25·12 francs per £. In the same way there is a limit to the rise (in the case of Paris 25-321). The two limits are called Specie Points." When the rate of exchange falls or rises to a specie point, transmission of bullion is imminent except in special cases and for temporary causes. Another point of great importance is that the price in London of cheques on Paris, and the price in Paris of cheques on London, always tend to become identical as being in reality the price of the same thing, viz. a fixed quantity of gold. In practice of course these prices are constantly differing by a small number of centimes owing to the difference of information in the two cities-news reaching one hours before the other perhaps. As a result people speculate in exchanges like stocks. Another result is that the important question constantly arises whether it is better in paying debts to buy cheques or bills and remit them, or to get our agents to draw upon us and sell the cheques and bills in their own market. The principle which governs the answer is that whatever will cost us less in sterling, or get us more in foreign money, is to be preferred. It is not so customary to deal in cheques (demand bills) as in bills payable at various dates. This introduces two new elements-the credit of the drawer and acceptor of the bill, and the discount due for present payment. If the credit of the parties is good, the difference of the long and short rates represents the discount due or owing for the time the long bill has to run. It is to be observed that the short rates govern the bullion movements, the long rates fluctuating too much on the question of credit to be reliable guides. There are two classes of exchanges quoted in London (1) those in which countries give variable rates for the £ sterling, (2) those which receive from London variable rates in pence for fixed foreign coins. In the former case a low exchange is unfavourable to us, and a high one favourable, and vice versâ for the latter case. The chief points to be remembered are:— (1) The prices of cheques and bills fluctuate according to the laws of supply and demand. (2) These fluctuations in cheques (not long bills) cannot rise above or fall below the Mint par beyond the specie points determined by the cost of transmitting bullion. (3) Theoretically the short exchanges between two centres tend to become identical, practically they differ slightly. (4) Long bills involve the additional elements of the credit of the parties, and discount. 6. Bills of Exchange. Legal definition.-A Bill of Exchange is a letter from a creditor to his debtor ordering him to pay (1st) a certain sum of money, (2nd) to a certain person, (3rd) at a certain event. BILLS OF EXCHANGE. 223 More practically.-A Bill of Exchange is a written order for the payment of a specified sum of money at a stated time. Strictly a draft differs from a bill in being addressed to an agent and not to a debtor, but the term is frequently used for a bill, especially before acceptance. The usual forms of Bills of Exchange are these: £287. 15s. 8d. I. INLAND BILL, London, May 10, 1873. Three months after date pay to myself (or A. B.), or order, the sum of two hundred and eighty-seven pounds fifteen shillings and eight pence, value received. To Mr ARTHUR HASSELL, Draper, 330 Strand, London. £394. 178. 4d. WILLIAM SMITH. II. FOREIGN BILL. London, June 30, 1891. Two months after date pay this our First of Exchange (Second and Third of the same tenor and date not paid) to Messrs Hill and Son, or order, three hundred and ninety-four pounds seventeen shillings and four pence, value received, and place the same to our account. Messrs DIMSDALE & Co. J. WEBSTER & Co. III. FOREIGN BILL. No. 510. F18570.75. Manchester, Ap. 3, 1890. Fourteen days after date, pay this bill of Exchange to our order, the sum of eighteen thousand five hundred and seventy francs, seventy-five centimes, value received, which place to account as per advice. To Messrs MERCIER FRÈRES, H. SCHWANN. IV. BILL FROM ABROAD. Payable in London. No. 1800. £480. 10s. Od. (Date when due.) Reichsbank, Hamburg, July 1, 1891. Ninety days after sight, of this our First of Exchange (Second and Third of same tenor and date being unpaid) pay to the order of Messrs Brown and Co. the sum of four hundred and eighty pounds ten shillings sterling, value received, which place to account of this bank as advised. EMIL SCHMIDT, Manager. To Messrs CHILD & Co., London. V. FOREIGN BILL. Drawn in sterling. No. 612. £412. 68. 8d. Nottingham, Two months after date pay to the order of Messrs Garnier the sum of four hundred and twelve pounds, six shillings, and eightpence sterling, exchange as per endorsement, value received, and place the same to account as advised. To Messrs KOHN & Co., Paris. (25.18.) T. & H. WELLS & Co. Forms II. III. IV. are strict drafts, as they are addressed to agents. The creditor who addresses the letter is called the drawer. The debtor or agent to whom it is addressed is termed the drawee. The person to whom it is to be paid is termed the payee. If the creditor sells it before it is sent he is called the seller and he must indorse it before parting with it. When it reaches the payee he must at once get the drawee to write his name across it with accepted," |