E X II A N G E 795 NEGOTIATION OF BILLS or EXCHANGE. Rates of exchange have undergone much variation of late years from changes of standard in some cases from gold to silver, and in others from silver to gold and from the circulation of forced paper currency. The tendency, however, is to greater uniformity. The gold standard of value adopted at Berlin extends to the whole German empire, and the rates of exchange are now calculated in imperial marks and pfennige at Hamburg, Frankfort-on-the-Maine, Altona, and other German places, where different moneys formerly were used. The money under the new system is 100 pfennige = 1 mark, 20 marks = 1 twenty-mark gold piece (imperial mark) = 19s. 6 9o4 sterling mint par. The mark, which is the unit or in teger of the system, is a silver coin based on the ratio of 1 to 15 as the relative value of silver and gold. In like manner the kingdom of Italy has extended a uniform exchange ; and the rates at Naples, Palermo, Messina, Milan, Turin, Florence, Leghorn, and other Italian towns are similar to the rates at Genoa. Bills of exchange may be made payable on demand (as the invariable rule is in the case of cheques), at sight, at a certain speci fied time after sight or after date, or at usance, which means the customary or usual time for which bills are drawn from a given place, and when the time is doubled it is called double usance. No bills are now drawn in London at usance, and the practice is being gradually dropped in other countries. The usance of bills drawn from France, Holland, and Germany is 30 days date ; from Spain and Portugal 60 days ; and from Italy 3 months date ; but the currency of bills is regulated more by the classes of business to which they relate than to the usage of any country. The allowance of days of grace is also going out of fashion. Three days are still given on bills drawn upon or payable in the United Kingdom other wise than at sight, anil a similar practice holds in the United States. St Petersburg gives 3 days on sight bills and 10 days on date bills, Copenhagen 8 days, Christiania 8 days ; but in these and other cases the allowance may not mark so distinctly the day when a bill is legally due as an interval within which certain legal pro ceedings of the respective countries cannot be irstituted. The practice, which was at one period extremely various, has now been reduced within such narrow limits that in exchange transactions in London no account is taken of days of grace. Bills of exchange in London are bought and sold through brokers, who go round the mercantile and banking houses, and discover whether they are buyers or sellers of bills. The negotiations are determined on Tuesdays and Fridays, which correspond with the principal post days in foreign exchange business. In London, as in other great commercial cities, bankers deal largely on the rise and fall of exchanges,- buying bills when they expect a rise, and selling bills when they expect a fall. Foreign bills are generally drawn in duplicate or triplicate, lest the first should miscarry. When thus drawn in sets, the first is payable only "second and third unpaid," the second "first and third unpaid," and the third "first and second unpaid." Where there is a doubt as to the acceptance, the first may be sent unindorsed to a correspondent of the drawer in the place of payment to have it accepted, and the second sold and put in circulation, bearing the name and address of the party holding the first or accepted bill " in case of need," that is, in case he may not have obtained accept ance, and will protect the drawer from having the bill returned through the indorsers. The indorsed second, and the accepted first of exchange, when wafered together, become one bill and are valid. Exchange, as regards the abundant arithmetic to which it gives rise in its negotiation, may be divided in to (1) Direct, or exchange between two countries M holly based on their rates of exchange, which is so simple as to need no remark ; (2) Cross, or exchange between two countries in which a third country has an interest, as when London, Fay, has 10,000 francs in Paris which he wishes to move to Hamburg, and has to take account of his own course of exchange to Hamburg as well as the direct between Paris and Hamburg, which is only less simple than direct exchange, inasmuch as it requires two formula} instead of one ; and (3) Indirect or arbitrated, where exchange between two countries is conducted through the medium of a third, or more than one other country, and thus becomes more compound as the sphere of the operation is extended. It is an arbitrated rate because ithas.no actual form, and is found only in figures out of the current rates of exchange between more than two countries. The object being to discover how a debt in one place may be most economically paid from another, the question carries along with it not only the difference between remitting and drawing whichexists in the simplest direct exchange the debtor in the one country and the creditor in the other having always the option of the one remitting or the other drawing but such minutiw as whether the rate of exchange given be in the foreign money or in sterling, till it results in the following rules : " For Remittances: "With a foreign rate, any arbitrated rate is better than the direct rate if it is greater than the latter; "With a sterling rate, any arbitrated rate is better than the direct rate, if it is less than the latter ; " Because, in either case, a given sum in sterling will produce a greater sum in foreign money, or a given sum in foreign monc-y will cost a less sum in sterling. " / or Drafts or Returns: " With a foreign rate, any arbitrated rate is better which is less than the direct rate; " With a sterling rate, any arbitrated rate is better which is greater than the direct rate : " Because, in either case, a greater sum in sterling will be obtained from a given sum drawn for in foreign money." l Nor is this all. Arbitrated rates are calculated for present money ; the actual rates of exchange on which they are calculated have been affected by time and rate of interest. In the rate of direct exchange particularly, with which the arbitrated rate has to be com pared, this effect has to be estimated, long bills reduced to short and the difference of interest on them discounted from the basis of calculation prima facie. This, in a superficial view, may be counter poised by drawing speculative bills of long date on a foreign centre, but there are limits to drawing on a place for purposes external to its ordinary course of exchange, and a large amount of bills thus directed without corresponding remittances might produce an effect on the exchanges which would go far to upset the calculation. It is obvious that arbitration of exchange, thus burdened at every additional length of the chain by difficulties of estimate, cannot be much extended or become too artificial without the risk of mis carriage. But the mediation of direct exchange through a third place is of such common and useful practice that it may be desirable to give an example broad enough to illustrate the general method of equation. Take London on Paris at 3 months, quoted f.25 55; Paris on Lon don at 3 months, quoted f.25 10. The discount for 3 months, in the example to be given, is taken at 1 per cent., or 25 cents., which is deducted from the London rate and added to the Paris rate, to make the two short or cash rates ; thus reducing the former to f.25 30, and raising the latter to f.25 35. If this variable price were in sterling, as for instance with Madrid, the allowance for interest would have to be reversed, that is, added to the London price, and subtracted from the price abroad. EXAMPLE. From the following rstes of bills in London and Paris it is required to find 1st. Whether, having money to transmit from London to Paris, it will be better for me to r^mit diiect bills on Paris, or to order bills in Paris to be drawn upon me in London, at the rate of 4 per cent, per annum. 2c/. Whether, having money to draw irom Paris, it will be better for my cor respondents there to make me remittances, or for me to draw up<;n them. 3d.- If I have to make remittances to Paris, whether any indirect rate will answer better than the rates of direct bills. 4t/i. If I have to obtain returns from Paris, whether any indirect rate will answer better than either of the direct rates. RATES OF EXCHANGE, London, June 17. Paris, June 14. 25-55 Paris at 3 months. 12"! * Amsterdam 209$ 13"K>i Hamburg 184 j 121 Frankfort 210| 2U-47J Leghorn 2 151oss = 100 lire for 85 francs METHODS OF WORKING THE EQUATIONS. Amsterdam. 1? 1 * l 2"lj Florins and Stivers. 100 - * 2-0i Francs. ! Francs 2 09J x 12-06$ = 25-24 Francs. Hamburg.
1 _ * is"ioj Mk. and Se. = 2184. Sc. Sc. 1600 = Mk. 100 - * 184 Francs. Francs 184 x 218$ -r- 1600 = 25-10 Francs. Frankfort. .11 10 - * 121 Florins. 100 * 2104 Francs. Francs 210$ x 121 -f- 1000 = 25-42 Francs. Leghorn. .1? 1 * 29-47J Lire Italiane. 100 * 85 Francs. Francs 85 x 29 47 j -^ 100 = 25 06 Francs. COMPARISON OF TIIK ARBITRATF.D RATES. Prices. Pars. London. Paris. London, 3 months.... Amsterdam 25-55 12"H 13"10J 121 29-47} 209$ 184 210J 85 2510 25-30 short. 2524 25-10 25-42 25-06 25-35 short. Frankfort Paris, 3 months 1 These rules of arbitrated exchange, accurately given in Tate s Modern C atnbitt, and the verbal puzzle of which turns chiefly on whether the rate foiming the basis of cumulation be foreign or sterling, lend force to the observation alove that the cue rate should never be lost iu the other one-sidedly. If distinguished in the practical quotation of exchanges, there seems no reason to take otherthan one
- n ni hit rated exchange.
2 The loss at Leghoin is owing to cash premium on forced paper currency, but,
a* it affects London ad Paris equally, dues not disturb the calculation.