Albuquerque morning journal. [volume] (Albuquerque, N.M.) 1903-1926, 1920-02-23
BY William r. Ben

web of delicate strands. Touch one
threatd and you make the whole
web tremble. What, then il the
web is not merely touched but vio-
lently shaken-a thousand threads
snapped at once?
That is what the world did to the
trade of the world. That is what
happened to what we call foreign
exchange" For the subject of for
eign exchange covers all our buy
ing and selling to other countries.
The moment a business man of any
country enters into a trade trans
action with a business man of an
other country he involves himself
In foreign exchange, for he faces
the fact of how and when he is to be
paid for the goods he has sold to
pay IN turn for he goods he has
bought.
And all business between one
country and another involves the
eventual consideration of how
much actual gold is to cross the
seas--and how often--in order to
strike true balance between all
the credit transactions involved.
Banks are the Intermediates of
all exchange of goods for money.
In both domestic and foreign ex-
change they facilitate three things;
first, the securing of immediate
payment for his goods by the man
who is selling, without his having
to wait until they reach their des-
tination subject to all the delays of
shipment and remittance: second,
the purchasing of the buyer, allow
ing him time to receive and dispose
of his purchase before he actually
has to foot the bill; third, the cam
ceiling out of credits one one side
of the ocean against credits on the
other side, thus making unneces-
sary money shipments to cover
every transaction, which would be
an onerous and hugely clumsy way
of doing business.
This cancelling out of balancing
transactions-as a clearing house
balances checks against each other
is foreign exchange reduced to
its simplest terms, The process
may, of course, involve many coun-
tries-the web spreads its net
work over the whole world. But by
making international transactions
easy and handling them at such
speed in such quantity, the banks
supply an effective fabrication for
the worlds trade.
Now, how Is a definite. concrete
transaction NADER
Let US suppose that Selfridge's,
of London. buys from Armour &
Co.. in the United States, 10000
worth of soap. 1t is obvious that
Selfridge would not send bullion in
payment. The bother and freight
cost on the gold, to say nothing of
the c.dmsiness, slowness and risk
of thissway of doing business, would
be prohibitive.
The Bill of Exchange.
Selfridge cables to Armour to
draw on Selfridge's London bank
for the amount due. Armour & CO.
do not do this directly. Instead,
they make out a draft. or bill of
exchange" on Selfridge and have
this credited in deposit at their
New York bank, we will say.
The credit stands not in pounds,
but in dollars at the current rate of
exchange-that is, the present val
ue of the English pound sterling in
| terms of the American dollar. U.s.
ually Armour, or any exporter, as
evidence that the transaction is
genuine, is also required to deposit
a full set of bills of lading and in
surance certificates covering ma
rine insurance, ETC., together with
invoice and shipping documents,
though all of these papers may not
be necessary. And it must be real
lied that there are several different
| ways of paying bills or receiving
money from abroad. This is but
one of them, illustrating the prin-
| ciple.
The draft credit may be "at
sight"-payable when presented
or it may be payable in thirty. six
ty or ninety days-according to the
arrangement between Armour and
| Selfridge. The draft reads some
thing like this:
Exchange for $...... at......
| days sight, etc, pay to order OF
..... National Bank, New York
| ...... (amount.) Value received,
and charge the same to account of
| Selfridge & Co., London, England"
There is also some such clause
as the following added to the effect
that the draft is payable with ex-
change, commission, stamps as
| we'll as interest at per cent per
annum, from the date hereof un-
til estimated date of arrival of re-
turn remittance in New York" The
interest clause will vary of course
according to circumstances, but the
interest must be paid, and, when
the money is obtained in London,
it will be deducted, from Armour's
| credit at the New York bank.
Now suppose an American firm
has bought of an English firm
100000 worth of linen. The Lon
| don firm can draw on the Ameri-
| can firm for that amount in pounds
sterling or the American firm can
purchase a bill of exchange to that
amount. Thus the banks are con-
8 antly buying and selling
bills of exchange on both sides of
| the ocean and bills of exchange are
passing across the ocean--but no
gold.
Bills of exchange can also be
transferred by endorsement just
| like checks, growing in value with
the number of signatures upon
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