The Manchester journal. [volume] (Manchester, Vt.) 1861-current, 1915-09-09

the English pound in New York-his
goods have cost him approximately
fil9 more than would otherwise hive
been the case. He has lost somewhat
more than S547 on this transaction
alone. When we consider the amor.
nous aggregate Of Great Britain's
purchases from us, the serious effect
Of such a drop in the value Of the
pound as has taken place in the last
few months becomes apparent at once.
True, II means nothing TO the Ameri-
Fan seller, and is even an advantage
to the American buyer whose bills arc
payable in pounds, In the case OF the
latter, he need now pay only S4.6O for
every pound he owes; in normal times
he would have to pay s4.s665, so the
saving is material where the debt is
large. But the credit fabric which
underlies all modern commerce is ex-
tremely sensitive and such situation
could not prevail long without becom-
ing serious menace.
Naturally, English purchasers will
not continue to buy goods which are
costing them 27 cents more for every
pound sterling in the debt than they
need pay at normal times. A drastic
curtailment Of purchases must ensue
if conditions are not remedied.
1t is not amiss to point out that the
decline in the value of the English
pound which has occurred is only six
per cent to seven percent of its face
value. This seems extreme because
of the English pound sterling has
ever been the synonym of impregnable
strength and stability, and, indeed, its
value never has been so low as recently.
As fact, however, the German mark
has dropped 20 per cent below its face
value. the French franc 20 per cent
and the Italian lire 26 per cent. The
six per cent drop in the pound ster-
ling is spectacular because it is un-
precedented, and because our trade
with England is so gigantic, whereas
trade with the other countries men,
toned is comparatively light at all
times and is especially so just now.
The latter fact lessons the significance
of the shrinkage in face value of
marks, franks and lire.
Some Conflicting Factors
To complete the explanation and
demonstration Of what foreign ex-
change really is, it would be necessary
at this point to enumerate the extran-
eous elements which play such an i'm
portant part in actual exchange OPP
erations and show their relations to
the subject. To do this in the present
article seems undesirable, merely
tending to confuse the mind OF the
reader. Let is suffice to point out a
| few of the most obvious. 1t some
times happens that the monetary units
of two countries are alike and inter-
changeable at par. For example the
basic coin Of Canada, British Hondu-
ras, Colombia, Liberia, Panama and
sevral other countries contains the
same amount of gold as the Ameri-
can dollar, therefore in exchange
transactions no problem Of reducing
them to common basis is presented.
! Then there is the matter of the banks
remuneration for accommodating
| traders and manufacturers by pur-
chasing their bills receivable and pro-
yiding the mechanism for the collec-
| tlon of them. This, of course, is a
factor in the cost of exchange"
| There is, also, the element Of time.
If the bill payable to him which the
trader sells to the bank is not due for
.1ms time, it mems that the lsttor
will have to wait for return Of the
money advanced, perhaps several
months. The trader has the banks
money; the bank has the traders bill
payable; but the former cannot collect
it until due. For the willingness to
forego the use of its funds until that
date the bank demands compensation
This it obtains by purchasing the bill
payable for less than it will collect
when the bill is due--enough less to
pay it for waiting that long. And
thus we have an additional element of
cost and complication.
1t is unnecessary to pursue the pro-
cess further, but it may be observed
that it is the multiplication of these
apparently trifing features Of the ac-
tual business which makes foreign
exchange" SO confusing to those who
have little or no familiarity with it
and even taxes the ingenuity Of the
expert to find lucid explanation Of
its character and operation. Stripped
of its formidable ramifications, for
eign exchange" considered either as a
hrcipacs nracticp or az a commodity