Price and stock to confirm
Ed. MacMillan and Co., 1908. Hard cover. Size 19,5 x 13 cm. State: Used, excellent. 160 pages
By George Clare
London, December, 1892
THE substance is here reproduced of a short course of lectures on the Foreign Exchanges, which the writer was invited to deliver in the early part of the current year before the members of the Institute of Bankers, and which were afterwards published in the Journal of the Institute. To justify their reappearance in book- form a few words of explanation appear necessary. It is manifest, in view of the able and exhaustive treat¬ment that the abstract theory has received in the well- known treatise by Mr. Goschen, and in other standard works, that it would tend to no useful purpose to serve up a mere réchauffé of those general principles which are already familiar to all educated men; and that simply to say over again what has been much better said before would be only trifling with the reader. More than this is required, and more has been attempted.
The difficulties inherent to the study of the ex¬changes (and that there are difficulties will scarcely be denied) are ascribable, not to failure to grasp the import of the few simple propositions that form the basis of the science, but to the perplexity attendant on the application of abstract principles to the solution of problems encountered in the merchant’s every-day experience. What the man of business wants is a theory so stated and so illustrated as to be capable of being easily adapted to actual use—a theory which, by enabling him to understand why a particular rate has risen or fallen in the past, may help him to judge for himself whether it is likely to rise or to fall in the immediate future.
Bearing these requirements in mind, the writer (who has gained his experience at first-hand) has endeavoured to render his exposition as practical as possible, and, at the risk of overburdening it with technicalities, has illustrated each successive step by reference to actual transactions and by numerous instances derived from the course of the exchanges. As he writes, too, for busy men, he has also aimed at plain directness of state¬ment, in order that he who runs may read, and, reading, understand.
LIST OF CONTENTS
I
INTRODUCTORY
What are the Foreign Exchanges? — Our Foreign trade — Barter — Instance of barter — The use of money — Bills of Exchange
II
THE THEORY OF THE EXCHANGES
How the settlement is effected when the transactions balance, —And how it is effected when the amount to be received exceeds or falls short of the amount to be paid.
III
ENGLAND DRAWS FEW BILLS, BUT ACCEPTS MANY.—THE REASON AND THE RESULT
If two countries buy of each other, only one of them need draw.—Why London has become the world’s settling- place.—The foreign exporter would rather draw on London than have us remit;—And the foreign importer would rather buy a remittance than accept a draft.— It suits us very well to fall in with this arrangement, and consequently our foreign trade is settled almost entirely by means of bills on London.—The rate of exchange between any two countries is fixed by the one that draws the bill;—Hence, the exchanges on London are controlled from the other side;—And the foreign trader naturally watches their fluctuations with greater interest than the British trader.
IV
THE PAR or EXCHANGE
Meaning of par.—The ideal par is an indeterminate quantity ; —But a Mint Par is fixed and invariable.—What Mint Par means, and how it is arrived at.—The French, German, and American pars.—Why the principal pars are of importance to business men.—The legal relationship of different currencies is not necessarily their actual relationship.
V
BETWEEN A GOLD-STANDARD COUNTRY AND A SILVER-STANDARD COUNTRY THERE EXISTS NO FIXED PAR OF EX¬CHANGE
The weight and fineness of the English shilling compared with that of the Indian rupee.—What the Coinage Act says about gold, and what it does not say about silver.— Bar gold can be turned into money by taking it to the Mint;—But silver can only be turned into money by selling it.—Hence, foreign silver coins are worth not their weight in shillings, but only what they will fetch. — Why the gold coin of India does not serve to establish a fixed par with the sovereign.—How the par ia established with a double-standard country.
VI
THE RISE AND FALL OF THE EXCHANGE
If the demand for bills on London exceeds the supply the price rises.—The point at which other means of remittance be¬come available is the extreme limit of the rise ;—But the limit for the time being is the rate that bankers will draw at, and this depends ultimately on the cost of covering their drafts.—Why allied exchanges rise together and fall together.—A fall of the exchange.
VII
GOLD-POINTS
The marketability of gold.—Definition of gold-point.—It is not possible to fix a gold-point with exactitude.
VIII
THE LONDON COURSE OE EXCHANGE
All exchange business is transacted in London.—The Royal Exchange.—Dealings in bills.—The Course of Exchange. —The double quotation. —Other capitals quote bills in the home currency, but London quotes some in sterling and some in foreign money.—Advantages of the practice.— Its drawback.—Some exceptions to the rule of quoting here as they quote abroad.—Anomalies in the list of places.—The great fault of a London Course of Exchange. —How bills are quoted in Vienna and Frankfort.—A suggested improvement.
IX
THE TERMINOLOGY OF THE EXCHANGES
Unless care be exercised, the technical language of the ex¬changes may prove misleading.—Significance of «rise» and » fall,» «high» and «low,» when applied to rates expressed in foreign money.—».Premium» and «discount.»—»For us» and » against us.»—»Favourable» and «unfavourable.»—What businessmen mean when they describe a rate of exchange as favourable.—A use¬ful rule of thumb.
X
THE ARITHMETIC OF THE EXCHANGES
Conversion of foreign money into sterling and vice versa.— Premium and discount.—Chain Rule.—Interest calculations.—» Tel quel» rates ; what they are, and how to construct them.
XI
FOREIGN BILLS IN THE HOME CURRENCY
A peculiar custom. —Advantage of drawing in sterling. —Why the exchange is fixed in London.—If a sterling bill has less than three months to run, how should it be endorsed?
XII
THE LONG EXCHANGE
What is the long exchange?—Interest.—Bill-stamp.—the question of credit.—Why interest is taken at the foreign rate.—The allowance for interest varies with the class of paper, because the discount-charge on the other side also varies. —Long and short rates from the foreign stand-point.—Arbitrage business and its influence on rates.— A practical illustration.—The sight-exchange between two countries cannot be rising on one side while falling on the other.
XIII
FLUCTUATIONS OF THE EXCHANGES
Why people pay more, or take less, for a bill than its face- value.—The rate is affected only by those transactions which have to be settled.—The supply of bills on London versus the demand.—The influence on the exchange of ordinary trade.—Of Stock Exchange business.—Of foreign loans, and the interest on them.—Of mercantile credits.—Of travellers’ credits.—Of blank credits.—Of arbitrage and speculative transactions.
XIV
THE CONTINENTAL INVESTMENT-DEMAND EOR LONDON PAPER
The functions of a banker.—Distinctive qualifications of a banking security.—Bills of exchange as investments.— Continental bankers buy those that yield the best return. —If the London market-rate rises above the Continental level, bills on London are sought after abroad and the price rises.—The lower the price the sooner it is affected by a difference in discount-rate3.—There is no necessary ratio between an advance of the discount-rate and a consequent advance of the sight-exchange.
XV
THE CONTINENTAL INVESTMENT-DEMAND FOR LONDON PAPER
(contimoed)
Owing to the want of necessary data it is in most cases im¬possible to ascertain the specific cause of exchange-movements.—But in the ease of the investment-demand cause and effect are intimately associated. —A comparison between the movements of the principal short exchanges in 1890, and those of the respective discount-differences. —How the principle is illustrated by the usage of sending «Firsts for Acceptance» to London.—Without good credit there can be no investment-demand.—How and why a ten-per-cent. Bank-rate in 1866 sent the French exchange down instead of up.
XVI
THE CONTINENTAL INVESTMENT-DEMAND FOR LONDON PAPER
(continued)
How and why a reduction of the discount-margin immediately sends the Continental exchanges down.
XVII
THE MONEY-MARKET AND THE GOLD-EXCHANGES
The Coinage Act, 1870.—An engagement to pay money is an engagement to pay gold.—To bankers, who are under engagement to pay large sums at short notice, this fact is all-important.—All the clearing-bankers keep an account at the Bank of England.—A demand for gold, in whatever part of the country it may spring up, must fall on the Bank of England.—The amount of gold in circulation varies with the state of trade.—And the amount of notes with the state of credit.—Why other countries send to London for gold, and what they want it for.
XVIII
THE MONEY-MARKET AND THE GOLD-EXCHANGES (continued)
The effect of every efflux of gold is to reduce the Reserve.— Why a withdrawal of gold from the Issue Department diminishes the stock of notes held by the Banking Department.—A rise of Bank-rate pulls up the deposit-rate, and a rise of the deposit-rate pulls up market-rate.
XIX
THE MONEY-MARKET AND THE GOLD-EXCHANGES (continued)
As the market has ample warning of the gold shipments due to unfavourable exchanges, it is usually prepared for them.—The New York exchange in October 1891, and the influence of its fluctuations on the London market- rate.—Why an advance of the discount-rate checks an outflow of gold.
XX
THE MONEY-MARKET AND THE GOLD-EXCHANGES (continued)
How a bill-broker is affected by a rise of Bank-rate.—Shipments of gold for special purposes cannot be forseen.— The normal condition of most of the exchanges is favour¬able to England.—Favourable exchanges do not necessarily bring gold. —Where our gold imports come from.
XXI
THE PARIS EXCHANGE
Par and gold-points.—The upper gold-point is only nominal. —Effect of the double standard.—The Bank of France and the gold premium. —Limit to the rise of the exchange. —The Paris Course of Exchange explained.
XXII
THE BERLIN EXCHANGE
Par and gold-points.—How the Reichsbank encourages im-ports of gold ;—And how it hinders exports. —The Berlin Course of Exchange.
at the Bank of England.—A demand for gold, in whatever part of the country it may spring up, must fall on the Bank of England.—The amount of gold in circulation varies with the state of trade.—And the amount of notes with the state of credit.—Why other countries send to London for gold, and what they want it for.
XXIII
THE NEW YORK EXCHANGE
Par and gold-points.—Is subject to fewer and less complex influences than the Continental rates.—In the autumn is usually against this country, but favours us during the rest of the year.—The fluctuations in 1891.
XXIV
THE SILVER EXCHANGES
The Indian currency system before and after 1835.—Value of the rupee.—The rate is always against us.—An easy way of finding the sight-exchange from the price of silver.— India Council Drafts—The exchanges with China and Mexico. —The Mexican Dollar.
XXV
THE PAPER EXCHANGES
Paper-money is in almost universal use.—Even if inconvertible, can be kept from depreciation if proper precautions are taken.—Cannot be exported.—Gold is dealt in like ordinary merchandise, and always stands at a premium. —The essential conditions of a sound system of paper- currency are elasticity and self-adjustment.—Inconvertible paper fulfils neither condition.—An over-issue may be accidental;—But is usually wilful.—Inflation and its result. —A recent instance.
XXVI
THE PAPER EXCHANGES (continued)
The ordinary theory of fluctuations appears to need modification in the case of paper exchanges.—The simplest plan is to regard every rise or fall as due to a change in the demand and supply of the national currency.—What governs the value of the paper unit.—Depreciation has no limit.—The effect of depreciation on trade.—The evil consists not in the extent of the depreciation, but in the violence of the fluctuatic-ns.—The classes that suffer most from it.—An unfavourable exchange tends to work its own cure.
XXVII
THE PAPER EXCHANGES (continued)
Course of the Brazilian exchange from 1888 to 1891.—Why it fell after the Revolution. —The Italian exchange. —Causes of the rise.—The Spanish rate.—The Russian rate.— Value of the silver rouble.—Effect of the Crimean and Russo-Turkish Wars on the value of the paper rouble.