The Portland daily press., 1862-11-27
The Mysteries of 5. Exchange, !,

We presume that most of our readers are
aware that the currency quotations of foreign
exchange represent premium considerably
in excess of the actual fact; but we doubt
whether all of them know precisely what is
the difference.
BY the usage of bankers, the old Spanish
dollar Is assumed for the par of exchange, one
pound sterling being equal to 40 of these
dollars. 1t was at this rate that sums of mo-
ney mentioned in the constitution of Massa-
chusetts were formerly changed into federal
money; and this rate no doubt originally rep
resented the true par between the two coun-
tries.
In point of fact, however, in the established
moneys of Great Britain and America, one
pound sterling contains as much gold as S6-
100 dollars, Of the United States, and this is
the true par Of exchange, or rate which must
be used in converting the money of one coun-
try into that of the other.
For instance, If any thing costs e1O0 in
Great Britain, its true value in ordinary times
expressed in the money of the United States
would be S4S6.
Accordingly, it is a fact familiar to all bank
ers that when exchange is quoted at about
100 1-2, in point Of fact there is no real preni-
um, but the true par has been attained. Be-
cause II we multiply A which Is the nomin-
al par) by 100 1-2 (which is then the quoted
rate) we get So (which is the true par.
1t is only when we use in the calculation the
higher rates TO which We have suddenly been
accustomed, that results are attained for which
some persons are not prepared.
For instance, when exchange is quoted at LAT
and gold at 1872 (which have lately been about
the current rates., many persons think that
the true premium of exchange is s l-2 per
cent They obtain this result by subtract
ing 1872 from l47; and allowing 8 1-2 for the
difference between the true and nominal par,
they find still remainder of 1-2.
1t Is only necessary to perform the compu-
tation in detail to see that it is erroneous.
l. Multiplying LAT by 4 40 we have 6,5333,
which represents the cost, in currency, of q
bill of exchange for one pound sterling.
2. Next, multiplying l32 by 4 S6-10O we
have 6.4l52, which represents the value, in
currency, OF the amount of gold contained in
one pound sterling.
3. Now, comparing these two sums we have
this proportion:
6,5333 64152: *: LOO
k LOIS
That is to say, the true premium is some
thing less than ttco per cent.
The premium on exchange, then, is not Al
per cent as those suppose who regard merely
the nominal quotation; nor Is per cent as
those suppose who subtract the price of gold;
nor 5 l-2 per cent, as those suppose who fur
ther subtract the difference between the true
and nominal par of-exchange; but, in point of
fact, it is something less than two per cent.
We need scarcely add that it is owing to the
circumstance that the expectations of gold
from America are not large. If there really
existed such heavy premium upon bills of
exchange as many persons suppose, it would
be immensely profitable to export gold to
England. In point of fact, in view of the nee
essary expenses of freight, insurance and loss
OF interest, the margin does not much more
than cover the risk.
To elucidate to the full extent the compute
tions connected with the subject, would lead
us to some curious results, for which we have
not space this morning.-lBoston Traveller.