The Wallace miner. [volume] (Wallace, Idaho) 1907-current, 1920-01-29

lect freight charges and insurance
premiums from our shippers, II is
clear that there would be great de-
mand in the New York market for
English bills with which to pay off
these various obligations incurred to
England. and SO the price OF ex-
change on England would rise If,
on the other hand, we sold large
quantities of goods to England larg-
err than any payments We would have
to make to her there would be a
heavy demand in London for Ameri-
can bills of exchange, little demand
here for British bills, and in conse-
quence the dollar would go up and
the pound go down.
In normal times, however, with the
free export and import Of gold per-
mitted, these rises and falls could not
go very far in either direction For
If, under the pressure OF a heavy New
York demand for English bills, the
price Of sterling rose very much over
the par Of $4.ss65 to the pound say
to $3.50, the American who had Eng
to get metallic gold with which to
settle and pay the freight and in
surance charges on it, Hence ex-
change in market from which gold
could flow freely and to which gold
had full access, never went further
up or down than the average cost OF
shipping gold. There were thus two
points, one above and the other the
same distance below par, beyond
which exchange could not go, because
beyond thoese points 1t was more
profitable to use gold than paper
These were called the gold points,"
Irtsrdepsndenee Of Exchange Markets
But exchange rates could not shift,
in this way between any two big
markets without affecting their re-
lations with other markets. For in
stance, If dollars were at a heavy
premium over pounds because of Pc
culiar conditions affecting England
and America only, while Anglo
French exchange remained at par, ir
very few hours American exchange
on Paris would be at a premium, too
For the exchange broker on the Paris
bourse could buy up. American dollar
drafts at par and sell them to the
Englishman with American debts t.
pay, who would be willing to pay f
little extra for them to the French
broker because Of the premium or
dollars. Since several French brok'
ers would realize this at once ant
proceed to bid in Paris for them, the
price would be bid up on American
dollars as against francs, too, as wei
as against pounds. In this way any
powerful movement on any eXchan g
market is transmitted to all the 9th.
ers.
There is an intimate connection
between exchange and foreign trade
For a heavy excess of merchandise
exports over imports for the United
States means, of course, heavy de
mand created in foreign exchange
markets for American bills, and con
sequently rise in the value of tn,
American dollar abroad as compared
with foreign currencies On tn,
other hand, as soon as this happens
people hesitate to buy from thi
country because they know they will
have to pay extra for the exchang,
with which to settle their bills, ant
also make strenuous efforts to sell II
the United States because they know
they can get good prices for thei
American drafts If they offer them il
the open market Hence, through It'll,
!, operation of the exchange market, al
overheavy balance of trade tends t.
. correct itself in normal times.
Where there Is difference Of an,
Importance between the interest rate:
prevailing in any two countries there
is certain to be a reflection in THE
difference in the exchange market
The country where the rate of inter.
est is lower Is apt to hold back it:
exchange bills, thus avoiding the ne
cessity of using gold to settle it's ac-
counts. For should the interest rate
in the United States, for instance
rule higher for any length Of time
than average rates in England, the
London market would purchase oul
bills as an investment and woul6
therefore have sufficient drafts or
American banks not to have to senG
gold
Thus another of the functions Of
the exchange market, besides being 8
substitute for the use of metallic golt
In settling foreign transactions, and 6
barometer Of the credit or debt posi-.
ton of a nation in International fin.
ance, Is to stabilize the rate Of in.
terest as between the great nations.
Very early in the war 1t was real,
lied that gold could not be permitted
to flow freely from one country tC
another, because it was needed sc
badly by all the belligerents as a ba.
sis for International credits. Accord.
ingly the free export of gold was
abolished, and the various govern.
ments practically Communicated al
the stocks of the metal. The ex.
change markets, without the STABILIZE.
.,x.- ..xfl, - = L.. 49,