EXCHANGE. 34 1 EXCHANGE. only, this i> probably never t lit- case. Eow then can a balance lie reached! In the first place, by Associating with New York other places which do their hanking through thai centre, In this manner practical equality of demand between points is attained and exchange is at par. Costs of shipment are eliminated, ami tu pay a debt of £500 in London, the New York merchant pays the exact equivalent in American money of the fine gold contained in £500. But such equality of demand is rare. There is usually an excess of payments to be made by point or the other. In such cases exchange rises above or falls below par. If New York has more payments to make upon London than London on New York, sterling exchange will be in demand. To secure the means of payment in London the New York merchant will pay more than the par. and ex- change is at a premium. If the contrary ease prevails, New York bankers in their desire to secure payments for London will offer them at less than par. The alternative of buying ex- change is always the shipment of bullion, and when the premium upon exchange grows as large as the cost of shipping bullion, gold exports will begin. The cost of shipping bullion fixes, there- fore, the maximum of exchange. In the last resort, therefore, the discrepancy in the relative demand of two points is liquidated by shipments of specie, but it is to be observed that it is only the balance which is shipped, and large amounts are settled by the principle of compensation. Be- fore the specie movement begins, adjustment is frequently sought by the shipment of securities, ami even of commodities. The rate of exchange is liable to be brought to a level by commercial exportation and importation, since, whenever it is expensive to get money sent to a country, there is a temptation to send goods to that country to compensate the debt. In the general circle of transactions of this kind, the State or town which has the largest amount of transactions will have the largest number of debtors and of creditors, and will afford the chief facility for each compensating the other. It is thus that London is the centre of the money market, where all the debits and credits of the world may be said to meet and extinguish each other. While the old notions about the balance of trade (q.v.) existed, it was supposed that the nation which the exchange was against was going to ruin, while that which it was in favor of was prosper- ing tli rough the other's loss. At present it is inconvenient and expensive to a country to have the exchange against it. An adverse exchange generally indicates a sort of break in the circle of trade which it would be advantageous to fill up. and may be caused by the commerce of a country decreasing; on the other hand, however, the imports for which a country pays in cash or in expensive bills may be the same as a highly advantageous traffic. Gold-producing countries find bullion their most advantageous export, and the same is the case with countries into which gold has flowed in excess. Some confusion as to rates of exchange often occurs because of the failure to note the diver- gent practice of the London and other markets. In London they reckon how much foreign money can be purchased by a definite sum of the home currency. Thus the par of exchange between London' and New York being £1 = $4,866%. Lon- don may reckon exchange at $4.84, in which case American monej i- dear and exchange at a premium. On tl ther hand ■ >■■ STorl reckons the cost in American monej of a definite quan- tity of foreign ney. Thus, when sterling exchange is quoted at $4.84, English money i cheap ami exchange below par. Consequently, in England, exchange 'falls' as the conditions l"- ■ more unfavorable, while in the i nited States exchange 'rises' when the conditions be- come unfavorable. . failure to note this differ ence has been a fruitful cause of misunderstand- ing. EXCHANGE. A term applied to an organ- ization of merchants meeting at stated times, generally daily, for the transaction of busine as well as to the building in which such meetings occur, lb-re and in Great Britain a sharp line is generally drawn between stock exchanges, at present the most important form of exchanges and those devoted to other classes of transacts but on the Continent of Europe this i- not the case. There the exchange focuses the com- mercial life of the community at one point, and accordingly the buildings devoted to the pur- pose are frequently among the architectural ornaments of the city, as in Paris and Brussels, Whether there is a single exchange or several, the kindred purposes of all such organizations have developed a particular type of building. There is generally a large quadrangular space surrounded by an arcade, frequently with offices opening from the latter. The central space, the 'floor,' devoid of furniture — transactions of large amount being carried in the head or on the simplest memoranda — is reserved for the ac- credited members of the organization, while the arcade, or gallery, as the ease may lie, accom- modates visitors. Offices for the manager and his assistants, and frequently reading and recrea- tion rooms for the members, form a part of the equipment of such a building. Exchanges as organizations are of quite early- date, and we have no precise record of their original purposes. It is probable that they grew out of the mediaeval guilds of merchants. The latter erected their own warehouses, and in the regulation of their use and the determination of trading customs and settlement of disputes in such guilds we see types of the activities of the modern exchanges. Many of the latter were founded early in the sixteenth century, especially in the Netherlands. The Royal Exchange of London dates from 1556, when it was established by Sir Thomas Gresham. Wherever they exist exchanges are primarily organizations of mer- chants with more or less recognition and control by the Government. In England and the L T nited States they are simply private corporation- chartered by the State, but on the Continent of Europe the Government takes an active part in their establishment and administration. The main characteristic of dealings in ex- changes is the fact that the goods dealt in are not physically present. There is not, as in the case of sales in a private establishment, op- portunity for inspection of goods. It follow-, therefore, that exchanges deal in standard goods only, or rather in such as may be definitely de- scribed. The purchaser of goods on an exchange does not buy specific goods, but rather a specific quantity of goods of a definite character. It is this feature which adapts the exchanges in so
