Perth Amboy evening news., 1923-07-20
FOREIGN EXCHANGE TOLD OF
BY MR.. HASKIN TODAY
Daily Letter by Frederic j. Haskin

WASHINGTON, July 20-The sub
ject of foreign exchange has always
been a bugbear to the layman ana
probably always will be-with ample
justification. There is a common say
ing among bankers and business men
that foreign exchange is not nearly
so complicated as is generally sup
posed" So many people have SAID
this thai the query arises as to now
many people there are left VINO be
Heve the subject is complicated. The
fact is that so far as common sup
position goes, the subject is moro
complicated than is realized. 1t has
been said that there are not three
men in the United States who really
| understand the ms and outs of for
eign exchange.
On the surface, the subject is SIM
pie enough. It is simple in its fun
damentals. But such a world Of
ramifications enters in that the fun
damentals become obscured past
recognition.
The fundamentals Of foreign eX-
change are these: The people of n
country sell goods to the people OK
another country. The second couu-
try sells goods to the first also.
Nor e y is merely a token Ct value.
The actual materials and
ties constitute the real values. In
normal, ideal trade, countries trade
off butter for shoes, for example, in
even volume. The difficulty that
arises is hat the volume Of trade sell
dom is exactly equal. One country
sells more than another. The result
is an unbalanced trade. When the
commodities exchanged do not bal
ance off precisely, the difference
must be made up in money, the arti-
fetal, arbitrary token of value.
If the United States owes Great
Britain money, the American debtors
must pay that debt in the money
values of the creditor country. They
must pay in pounds sterling. The
Americans must buy foreign ex-
change. This means that they must
find people in this country who own
British pounds.
Money Has Its Price
Money, like bicycles or rubber
boots, has a price and that price fluc-
tuates. Supply and demand govern
1t. When many Americans, as the
! result of unbalanced trade. owe
money to many Britons, there is a
heavy demand for British pounds.
Therefore, the price of pounds goes
up. At theoretical par, the pound
sterling is worth s4.86. That means
the British pound contains $4.86
worth of gold which is the standard
medium throughout the world. When
the demand for pounds is strong Am
orleans may have to pay as much as
So for one pound.
The reverse situation has been true
for some years past. More British
owed money in American than Am
orleans In Great Britain. The re-
suit was that, at the lowest, an Eng
lishman had to pay a full pound.
normally worth S4.S6 for only about
So in American money, The pound
has returned nearly to par at this
time.
In former times exchange was
more difficult to handle than now
Americans owing money in England
sometimes actually would go from
door to door in business districts
looking for people who had British
pounds in British banks. They would
buy these, paying what excess price
was required.
Such a situation exists today, 70.
the IlfSL time IN DeCduSi
of the badly deranged exchange sit
uation. The big banks actually sem
solicitors from door to door, not onl.
in business districts, but in residencl
districts of big cities, especially il
the foreign quarters, looking for i'm
migrants on foreign born person
7 who have money in other countries
The same is done in foreign coun
! tries where people who have dollar
are sought. These agents buy thes
accounts.
The machinery Of exchange i
I handled nowadays almost who'll
through the banks. Suppose a Phil
adelphia optician buys a consigr
. ment of optical goods from a whole
) sale firm in England. He pays 70
the goods by sending a check on a
i American bank. The seller in Lon
: don deposits the check in his banl
= The bank notes hat here is a sill
G of paper which represents the owr
ership of dollars. It credits the Sc
Ter of the goods with British pound
which, of course, is what he want
The dollars are put in a foreign es
change account.
Y The bank then becomes owner
these American dollars. Some or
comes in who does not want to sen