New-York tribune., 1917-11-25
The Mechanism of
Foreign Exchange

In the current issue Of "The Amer
icas," published by the National CITY
Bank, is presented an interesting end
instructive article on the mechanism
Of the foreign exchange market, de-
scribing the way in which the great
international banks Of the world
transmute. bills for merchandise into
available credit that are flashed by
cable from one part Of the world to
another.
II it were not for the established
machinery of banking, transportation
and insurance, "The Americas" ex-
plains, it would be next to impossible
for men to make international trades
without the one going personally or
by representative with his goods and
bringing back his money. The inter
national banking system consists of
hundreds Of banks, covering every
part Of the world, which, either by
branches or by arrangement of direct
correspondence, or indirectly through
correspondence connections with large
central institutions such as the great
banks Of London, are In a position to
exchange credit services with each
other
What the Bill Is
The international bill of exchange,
in any one of several forms, is the
medium of exchange by which credits
IN any nations money In one part of
the world are made available in an
other part Of the world In another
nations money, through the machinery
of international banking. The trans
oceanic cables are used extensively in
the transfer Of credits, but the bills
Of exchange, representing the tangible
evidence of the obligation of the buyer
to pay for the goods, through some
banker, is first validated by an inter-
change of advices by the banks and
then becomes a kind of international
money that is often used in settlement
Of transactions with which the origi-
nal merchandise covered by them has
nothing whatever to do, often even in
payments for obligations that are in
Cured in transactions between other
parts of the world.
A man in New York sells machinery
to man in Spain. The two parties to
the transaction have established busi-
ness relations with local banks. Their
own local banks may do an interna-
tional business direct, or do it through
connections with some large metro
politan bank with strong branches and
correspondence arrangements all over
the world. They have probably got in
mercantile touch with each other
through the medium of the banking
across the ocean; at any
rate, their business confidence in each
other is largely due TO the fact that
regular banking connections establish
the fact of a mans business integrity
and responsibility in both domestic and
trade.
The New York man packs his ma
chinery and ships it. He has made
out his invoices describing the ma
chinery in detail. He has taken these
invoices to the New York consular
representative of Spain and attested
the correctness of the description un-
der oath. He has thus made any de-
liberate Misrepresentation of his goods
an overt act that might have serious
He has insured his ma
chinery covering the voyage to Spain.
He has delivered it to a steamship
company for transportation, and has
received his bill of lading, a document
that must be delivered up 10 the COM
pany again at the point Of consignment
in Spain before the company viii give
up the machinery. He has the three
"documents"-the sworn and officially
vised consular invoice the insurance
policy. and the steamship bill of lad
ing. This very important combination
plays a big part in international COM
merce-a responsible business man
with established credit rating at his
own bank has documents calling for
delivery Of shipment Of carefully
described and valued goods 10 another
man Of established responsibility who
has agreed 10 accept and pay for the
goods, accompanied by an insurance
contract upon which the value Of the
goods will be paid if the steamship
company is unable to deliver them.
How Ii Works
He sits down and draws a draft
in which, according to the established
usages Of centuries Of trade, he directs
the buyer OF his goods in Spain, upon
"sight" or demand" or at any speci-