New-York tribune., 1920-02-23
The Inside Story of
The Strangest Market
Peek at the Machinery of Trading Which Runs
Into Millions of Dollars Between Sellers and
Buyers Who Never See Each Other

| Increased IN exchange months on re-
ports OF huge profits. According to
bankers, several Of the brokers, who
also anu act as principals, have taken ST.
market as a result Of the leaping of
the dollar to the greatest premium in
history over the European currencies in
recent months. They made their last
profits by selling future exchanges at
the comparatively high levels of about
SIX months ago, and when the time
came to deliver actual exchange against
the futures they were able to go out
into the market and buy exchange at
tremendously reduced quotations. Their
/! operation was in effect similar to thai
of the short seller during the time of n
preclpltous slump in the stock market.
Banks Are Retailers
# the brokers are the jobbers Of the
exchange market, the banks and other
financial institutions are the retailers
The individuals, or firms, or CORPORA
tlons, who are the consumers Of ex-
change, needing it either to pay for or
to receive payment for the sale or
purchase of goods, services or sccuri
ties overseas, come to the bank to get
the actual exchange made What tho
American firm who has received money
from overseas wants is dollars, and in
case he has received pounds, he will
take his bill representing pounds to the
bank and have it converted into dollars.
II the exchanges were selling at par, he
would receive $4..8666 for every pound
presented at the bank, but because Of
the abnormal trade and financial situa-
tion following the war, the dollar is at
a premium over the European cur
rencies, and recently pound was worth
as low as 1919 in New York. The dol
lar value of the European currencies.
which the bank quotes to its customers
Is determined by the general condition
OF the foreign exchange market, which
consists Of all the financial institutions
brought together by the brokers The
bank has price which it will paw for
exchange and slightly higher price at
which it will sell It, and the difference
represents Its profit, which normally is
small in each case, but which in the ag-
gregate becomes sizable The large
financial institutions have foreign ex-
change departments, and special men
are designated to buy and sell bills in
the open market. A certain amount of
capital is assigned by the board of d.
rectors to the head Of the department,
and his success is judged by the profit
he makes, above the interest rate on
the capital.
Whether the bank is buying or sell
ing in the open market depends on
the character of business it's customers
are giving it on given day. Some
banks dispose Of bills soon after they
have received them, and merely nlaku
the narrow profit consisting of the dis
parity between the bid and asked quo
tations on exchange. However, some
institutions speculate in exchange, as
suming the risks and putting them
selves in position to make large profits
from slumps and rallies.
Talk of Organizing Market
Some bankers regard the present
method OF buying and selling exchange
over the telephone as i'll adapted to
the greatly exranded needs, and sug-
gest organizing more regular
market, equivalent to the stock ex-
changes and the comm odty exchanges.
objection lies in the fact that there
is an advantage in not meeting the
men from whom they are buying or
selling. Dealing through the interme-
diary broker, they are able to say with
out blushing: Il do not want the bills
drawn by such and such an institution.
| don't think they are good for this
amount" If the buyer met the seller
face to face he might hesitate to be
50 pIula4ly frank, ana lffllatlnE cir
cumstances would follow, it is feared
Moreover, according to brokers, the
building of an exchange would take
the banks trader physically away from
the bank, and he would be less in touch
with the actual needs of his particular
bank, and the close relation between
the banks wholesale and retail opera
tions in exchange would be impaired.
Moreover, formal exchange would
vitiate the secrecy which now prevails,
and every trader would have the op-
portunity to learn the market position
of every other financial institution. At
present the broker often declines to
tell for whom he is buying and sell
ing, and some brokers decline to trade
with others because of the publicity
so doing might give to the opera
tions of their clients AS general
rule, brokers occasionally do trade with
other brokers. The large bank is in
touch through direct wire with about
a dozen brokers.
Those brokers who suggest definite
home for the foreign exchange market
refer to the methods that obtain in
Berlin and Paris, which exchange mar
ket is an adjunct to the stock exchange
The London system is more informal
as in New York, but the critics here
assert that the London brokers are less
greedy.