(2) If A have a sterling rate and B a foreign rate -the interest must be added to A's rate and taken from B's. (3) If A and B have both sterling rates-the interest must be added to both rates. Ex. (1) London on Paris, 3 mos., 25'55 Paris on London, 3 mos., 25-10) Rate 4 p.c. for both places, .. interest for 3 mos. = Thus London short rate = = 25 c. 25.30. Paris short rate Ex. (2) London on Lisbon, 3 mos., 521 Rate 5 p.c. in Lisbon, 3 p.c. in London, .. interest on 50 at 5 p.c. = §, at 3 p.c. = 3. Thus London short rate = 527 and Lisbon short rate= 52. Ex. (3) London on Petersburg, 3 mos., 24 16 4 p.c. in each place. Interest on 24-1875 - = = Rate 241875 Thus London short rate 24-429 and Petersburg short rate = 98.879. The principle underlying these laws is that a bill sent to Paris now would have interest deducted for the time it has to run, while a bill drawn on London would have interest added for the same time-and vice versa for London and Lisbon. In the case of London and S. Petersburg both such bills would have the interest added. 2°. Compare the short rates so obtained andafter observing whether the operation is in reality a remittance or a return and whether the rate is foreign or sterling-decide whether a remittance or draft is to be preferred. COMPARISON OF RATES. 241 The following laws will be a guide to the operator :— (1) For remittances from A to B. (a) If A has a higher foreign rate or lower sterling rate than B-A should remit to B. (b) If A has a lower foreign rate or higher sterling rate than B-B should draw upon A. (2) For returns from B to A. (a) If A has a higher foreign rate or lower sterling rate than B-B should remit to A. (b) If A has a lower foreign rate or higher sterling rate than B-A should draw upon B. The principle underlying these rules is that for remittances abroad a high foreign rate or low sterling rate requires less money from the payer, and for returns to this country a low foreign rate or high sterling rate will produce more money for the payee. 3o. Find the actual cost of the remittance or draft, making allowance for brokerage, stamps, interest or discount, and commission if any. These charges should be studied under each country. Multiples may be constructed for frequently-occurring rates. The methods of approximation apply. Example. A debt of 20000 roubles is owed by a London merchant to one in S. Petersburg. The London rate is 3 mos. 24, the S. Petersburg rate is 3 mos. 97.90. The rate of discount for each place is 4 p.c.; find whether he should remit or instruct his agent to draw and show the difference. (1) Reduction to short rates of the same kind. (2) Comparison. London 24-429375). S. Petersburg should draw at (3) Routine of the difference in paying on account. (a) Remittance. £2000 invested in Russian bills at 24 3 mos. will buy 19844.96 Ro. Disct. at 1 p.c. (3 mos. at 4 p.c.) 198.45 19646-51 9.82 29.47 19617-04 Ro. Less brokerage at 1 p.m. 19-65 (b) Draft. £2000 draft on London offered in S. Petersburg at 97.90 3 mos. will produce 19580.00 Ro. Interest at 1 p.c. 195.80 19775.80 Less brokerage at 1 p.m. 19.78 9.89 Less commission p.c. 29.67 19746-13 Ro. 24.68 19721 45 Ro. Note. Unless the debtor has an agent in the foreign place or unless he banks with a bank which has a correspondent he would find a difficulty in getting a draft upon himself. Banks have a large network of agents for this purpose. Large houses of bill-brokers also have correspondents or branches all over Europe. Further, if two firms have frequent dealings with each other, there is no difficulty in paying an account or getting drafts. Isolated debts are usually settled by direct remittance or draft. London merchants have greater facilities for buying bills on 'Change than those in the country. The purchase of bills lends itself best to payments on account, but occasionally the exact bills required may be bought. (4) Routine of the exact difference. (a) Cost of a bill for 20000 roubles. 20000 roubles at 3 mos. 24 will cost £2015.625 20.156 DIRECT RATES. (b) Draft required for 20000 roubles. 243 Preliminary Determination - given rate 9.79 3 mos. Discount 4 p.c. Brokerage 1 p.m. Stamp p.m. Com. p.c. Draft required £2028-2519 offered in S.P. at 9.79 3 mos. will produce 19856.586 Ro. Interest 1 p.c. 198.566 20055.152 Similarly the comparison of any other pair of rates is made. If a rate is quoted short it will require no change. If both are short and of the same kind—no calculation is required and it will be obvious on inspection whether we should remit or draw. If one rate is long and the other short but of a different kind the simpler plan is to reduce the long rate to short and convert the other into the same kind. e.g. London-Paris. Cheques 25-18-25·17. London should remit. London-Berlin. London, 3 mos. 20:53. Berlin, 8 days, 20-40. (Reduce London rate to short.) London-Russia. London, 24, 3 mos. Russia, 97.80 short. (Reduce London rate to short and convert Russian.) EXAMPLES. Notes. (Consult Daily News extract, pp. 230—32.) If one rate is given, it is rate of remitting place. If two rates are given, they are rates of first upon second, and second upon first place. The rates of discount also are in same order as the places. The bills also are debts in the country of the given currency. Brokerage, commission, stamps, postage, must always be considered. The rates will be found under each country. The interest (discount) rates are generally the bank rates, where payable, and of course vary from time to time. Some places reckon at the market rate of discount. Decide on the advantage of remitting or drawing, and find minimum cost of payment. 1. London-Paris, 25000 francs, rates, mos. 25·19, 3 mos. 25.15, discount 3 p.c., 3 p.c. 2. London-Amsterdam, £865. 12s. 6d., rates, 3 mos. 12:35, 3 mos. 12.08, discount 2 p.c., 24 p.c. 3. London-Berlin, 8375 marks, rate, 8 days 20-40. 4. London-Paris, £567. 9s. 7d., rate, cheques 25.17. 5. London-Calcutta, 15000 rupees, rate, T.T.'s 1s. 315d. 6. London-Lisbon, 23156.2 milreis, rates, 3 mos. 391, 3 mos. 394, discount, 3 p.c., 23 p.c. 7. London-Vienna, £641. 17s. 6d., rates, 3 mos. 12.04, 3 mos. 118-75, discount, 11⁄2 p.c., 3 p.c. 8. London-Petersburg, £7000, rates, 3 mos. 241, 3 mos. 99.65, discount, 3 p.c., 2 p.c. 9. London-Genoa, 12516 lire, rates, 3 mos. 26·53, 3 mos. 26.32, discount, 2 p.c., 3 p.c. 10. London-Shanghai, £864. 13s. 4d., rate, 6 mos. 3s. 10ĝd., discount, 3 p.c. Further direct exchanges are given under each country. 15. Indirect or Arbitrated Exchanges. It is at times advantageous to pay a debt or to receive a remittance in an indirect way, e.g. by purchasing bills on other places and sending them for sale in the place where a debt is owing. A merchant can only purchase such bills as are in the market and therefore most firms have agents or correspondents abroad to whom they send bills on account -the agents actually paying their debts. Bankers, for this reason amongst others, have a large number of |