Loading ...WHAT FOREIGN EXCHANGE IS AND WHAT BRINGS IT INTO EXISTENCE
UNDERLYING the whole business of foreign exchange is the way in which obligations between creditors in one country and debtors in another have come to be settled — by having the creditor draw a draft directly upon the debtor or upon some bank designated by him. A merchant in New York has sold a bill of goods to a merchant in London, having thus become his creditor, say, for $5,000. To get his money, the merchant in New York will, in the great majority of cases, draw a sterling draft upon the debtor in London for a little over £1,000. This draft his banker will readily enough convert for him into dollars. The buying and selling and discounting of countless such bills of exchange constitute the very foundation of the foreign exchange business. Not all international obligations are settled by having the creditor draw direct on the debtor. Sometimes gold is actually sent in payment. Sometimes the debtor goes to a banker engaged in selling drafts on the city where the obligation exists, gets such a draft from him and sends that. But in the vast majority of cases payment is effected as stated — by a draft drawn directly on the buyer of the goods. John Smith in London owes me money. I draw on him for £100, take the draft around to my bank and sell it at, say, 4.86, getting for it a check for $486.00. I have my money, and I am out of the transaction.
Obligations continually arising in the course of trade and finance between firms in New York
and firms in London, it follows that every day in New York there will be merchants with sterling drafts on London which they are anxious to sell for dollars, and vice versa. The supply of ex- change, therefore, varies with the obligations of one country to another. If merchants in New York, for instance, have sold goods in quantity in London, a great many drafts on London will be drawn and offered for sale in the New York exchange market. The supply, it will of course be apparent, varies. Sometimes there are many drafts for sale; sometimes very few. When there are a great many drafts offering, their makers will naturally have to accept a lower rate of exchange than when the supply is light.
READ THE FULL BOOK BELOW
Please Activate the Full Screen Mode for Better Viewing Pleasure (2nd button from the left)
LINK
EMBED
Related posts:
- Foreign Exchange and Foreign Bills in Theory and in Practice PREFACE The object of this work is to present in...
- Foreign Exchange Before, During, and After the War The Market and its Meaning Ours is a, weary and...
- Domestic and Foreign Exchange PREFACE There is nothing mysterious or difficult about foreign exchange...
- Foreign Exchange – Theory and Practice PREFACE Foreign exchange is attracting more attention than any other...
- Guttag’s Foreign Currency and Exchange Guide PREFACE Since the World War 1914-1918 a greater interest generally...
Store Fleet