The Wichita daily eagle. [volume] (Wichita, Kan.) 1890-1906, 1902-11-16
MYSTERY Of
FINANCE Bills
One Name Credit as PraCticed
in Many CenterS.
THERE is A LIMIT TO IT
For 1t Is Based Wholly on
Character of Borrowers.

IT is well known that the refusal OF
aterling exchange rates, this past fort
night. 10 yield in response TO the high
New ork money rate, is due to demand
for exchange TO pay of this markets
borrowings abroad. Tight money here
usually draws capital from all other mar
kets To transfer such capital, bills of
exchange must be sold in quantity, and
their sale all other things being equal
viii break the sterling rate. When, on
the other hand, this market pays or ma
turing loaas from Europe, sterling Bills
must be brought to transfer the capital
Both operations have been conspicuous
in the present curious market they have
quite offset one another; the result being
that foreign exchange has refused to fall'
even in the face OF call loans, Fl Is and
p per cent This matter of repaying for
eign borrowings OF previous seasons IS
mystery to many people, it is the purpose
OF this article TO explain it.
Every fast steamer sailing for Europe
this week mas carried heavy remittances
ir payment Of finance bills placed abroad
by American bankers ninety days ago
The adjustments have come about in re-
Spouse TO the higher rate asked for re-
way of saying that further extensions are
not desired, except at terms which regis
ter a materially larger risk. In other
words, European centers express the be-
lief that the American situation while
not weak or necessarily alarming, has
within the last three months. become
too much involved to justify acceptanees
at the terms quoted last June.
OF all forms Of credit, none is simpler or
easier understood that the finance bill Il
is not understood by the general public,
however. or even by Wall street, as a
whole To most people, it appears extra
ordinary that 500, 900 600 capital should be
leaned out BY foreigners to bankers in a
given market, simply on their promise to
Fay and without a dollars worth of secur-
ity collateral Yet this is precisely what
happens with the fanance bill. 1t
represents John Smith < Co.'S (of New
York; promise TO pay a certain sum az
their ondon house on a given day. It is
secured by no collateral, being backed
only by the firm : credit and the endorse
neent OF the ondon connection through
whom it is negotiated. IN ondon. it is
presented to one OF the great discount
hanks which values it in the light OF
the borrowers known responsibility and
reputation for fair dealing. In this con
nection a variety Of considerations enter
in. the transaction being governed not
so much by the firms great wealth as
bv its foreign connections and credits.
II the name represents years of prestige
I'm banking. the bill will pass almost as
readily in ondOn as would the paper OF
& Chicago firm at a New ork bank In
both cases the transaction has to stand
the test OF rigid scrutiny az TO the Dor
rowers character, ability. and real
worth. the chief difference being that the
foreigner insists upon world wide business
connections as essential to his protection.
while there is no clearing house fol
ouch credits. and no way of tracing in
detail what a firm's floating Indebtedness
amounts 10. the ondon banks manage to
keep accurately informed respecting the
noouritv Of such loans. This is done by
frequent conferences between the lending
bankers, At which the value Of American
paper outstanding is compared and the
whole situation carefully gone over. Add
ed 10 this are the 55urv-s e information
oren to The agents Of foreign banks IN
this Country. so that the complete advices
sources approximate the detailed accur-
.cv OF a commercial-agency report In
this way. the financial affairs Of the
United States pass constantly under re-
view abroad, both as regards their re-
lation to the political and industrial out
lcok a. we'll as their peculiar sensitive
ness to disturbance elsewhere. These
precautions are necessary. for no other
Glass OF discounts in the world rest more
absolutely upon the responsibility Of a
single name than these acceptsnces. which
three months ago approached, according
TO estimates made this week by foreign
exchange experts, the enormous total OF
5co.O0o.OOa.
With the borrower who figures on get
ting his money 3 little below the ruling
rate fer time loans in New ork the
fluctuations in the market for interna-
tional exchange assume great Importance
lie has to take into account. FIRST the
price at which he can purchase sight
sterling. on the date when his loan ma
lures or arrange in advance if the mar
ket tends towards a higher level In this
regard there IS room for much specula-
ton. owing TO the wide fluctuations Of a
r.arket that can never be accurately fore
casted in advance. This was Well Illus
trates last Monday. when. with sterling
at 1851. American borrowers had u set
lie their foreign obligations with eN-
change purchased at the same figure or
higher. on this operation. there should
have been loss. The market held strong
ali that day. but within twenty-four hours
sight drafts dropped almost Is cent. Had
The accounts been settled at a lever rate
q large saving would have resulted
Repaving Of these obUvations has con
t-ibuted 70 the liquidation in this stock
market because OF the enormous sums
tut out on call by the bankers who had
obtained can loans a6roaR Forced to
return the foreigner MS capital. they had
70 recall their advances TO local borrow
ers. Much Of this fund has been borrowed
abroad for the purpose q protecting the
local money market from disturbance
pending The contamination OF important
deals with which the borrowers were
connected. ana with its recall a general
shiftinE about Of credits has taken place
IN few instances the loans have been
s.ttsed with borrowed money. although
most Of the houses with credit sufficient
70 lnoat finance bills prepared long aso
foJ the day Of reckoning which finally ar
r,fed al a most inconvenient time.
concerning the alliance OF these o7.iza
~ rs stfn outstanding no one can sneak
9Th absolute accuracy. COMPETENT judges
However. intimate that sS0ooeo 90 would
commemorative estimate. : weli-known