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5. A note of $1000, dated Feb. 1, 1903, with interest at 6%, was indorsed as follows:

March 1, 1903, $200; May 10, 1903, $100; July 1, 1903,

$150; Oct. 15, 1903, $40. What was due Jan. 1, 1904? 6. Solve number 5 by the United States Rule also.

VI. EXCHANGE

364. Exchange is the system of sending money from one place to another, or of making payments by written orders, without sending the money.

365. If Jones, of Chicago, wishes to pay a debt in Boston, he can do so by sending the money:

1. By a special messenger. (Usually too expensive.) 2. By unregistered letter. (Unsafe; liable to be lost or stolen.)

3. By registered letter.

(Reasonably safe.)

4. By express. (Safe; company is liable for loss.) In each of the four ways mentioned, the money is actually transmitted.

366. Jones may cancel the debt without actually transmitting the money by sending:

1. A postal money order.

2. An express money order. (Safe.)

3. A telegraphic order. (Safe, but expensive.)

4. A check on his home bank where he has money deposited. (Safe, but the creditor may have to pay a small sum to a bank for collecting it.)

(Reasonably safe.)

5. A draft drawn by the cashier of a bank on some bank in a large city. (Safe.)

NOTE.-Excepting the 4th and the 5th, the above-mentioned methods of paying debts at a distance are so simple that no further explanations need be given here.

367. A check is a written order on a bank by a depositor for money standing to his credit.

15. July 30, 1904

THE AUSTIN NATIONAL BANK

AUSTIN, TEXAS.

TO THE ORDER OF

301904 No.25′′

orbearer $76.

John Simpson Seventy-five and no-Dollars John Wilson

FORM OF CHECK

NOTE.-John Simpson must indorse the above check before he can draw the money. He may transfer the check to another party, who must also indorse it, as in the case of a promissory note.

"6

If the words "or bearer" are used, instead of or order," no indorsement is necessary, and any one in possession of the check may draw the money.

368. A draft (also called a bill of exchange) is a written order made by one party to another to pay a specified sum to the party named therein.

369. The parties to a check or draft:

1. The drawer is the one making the order.

2. The drawee is the one to whom the order is addressed.

3. The payee is the one to be paid the money. Drafts are either sight drafts or time drafts.

370. A sight draft is payable when presented.

371. A time draft is payable a certain time after date, or after sight, allowing 3 days of grace.

372. The acceptance of a draft is the promise of the drawee, made when the draft is presented, to pay it at maturity. This obligation is acknowledged by writing in red ink across the face of the draft the word "accepted," with the date and the drawee's signature. The draft then becomes an "acceptance," and is of the same nature as a promissory note.

373. The rate of exchange is the rate above or below par. 1. When the bankers of New Orleans do not have enough money on deposit in New York banks to pay the drafts they are drawing upon New York, they are put to the expense of sending the money, or of paying interest on what they owe. This raises the price of drafts in New Orleans, or exchange on New York is at a premium.

2. When the New Orleans bankers have large sums of money deposited in New York banks, often they are willing to sell drafts on New York at a discount, to get money to use at home without the expense of having it forwarded by express.

3. Exchange between two cities is generally about the same as the cost of sending the money by express.

374. Fundamental principles of exchange:

1. In sight drafts, the cost equals the face of the draft plus the premium or minus the discount.

2. In time drafts, the cost equals the face of the draft minus the interest, plus the premium or minus the discount.

(1) DOMESTIC EXCHANGE

375. Domestic or inland exchange is exchange between people in the same country.

3. Aug. 5, 1904

PAY TO THE $30000

-DOLLARS

AUSTIN, TEXAS,–

ORDER OF

At sight.
John Godd
Three hundred and m~~

no

VALUE RECEIVED, AND CHARGE THE SAME TO THE ACCOUNT OF

TO Morley Bros.
Chicago, Ill.

WITH EXCHANGE

3-John Scott

FORM OF SIGHT DRAFT

NOTE.-A time draft differs from the above in that, instead of "at sight," " .....days after sight" or "......days after date" is used. Of course, in time drafts after sight means after acceptance.

NOTE 2.-This draft was drawn by John Scott, the drawer, upon Morley Bros. of Chicago, the drawee. The Morley Bros. are hereby ordered to pay John Todd, the payee, $300.

Problem: What did John Scott pay for the above draft if the premium was 1%?

Exercise XLV

1. What will be the cost of a draft on San Francisco for $4300 at 1% premium?

2. Find the cost of a draft of $8400 on Chicago, at 1%

discount.

3. B paid $1602 for a draft on New York at 1% premium. Find the face of the draft.

I.

II.

[blocks in formation]

1. Since 100% of draft
2. .'. 1% of draft
3. and 99.45% of draft

=

=

=

=

What is the face of a draft that costs:

4. $600, premium 1%?

5. $1300, discount %? 8. Find the cost of a 60-day draft of $1000 on Chicago, if interest is 6%, and the premium on Chicago is 1%.

SOLUTION:

40

1. Int. on draft for 1 yr. at 6%
2. Int. on draft for 6 yr. at 6%
3. 100% of draft + 1% of draft -
of draft.

1600. .. $1600 = face.

=

=

=

=

=

6. $2000, premium 3%?

7. $2000, discount 1%?

$1000,

Too of $1000

99.45 × $10

6% of draft.

24% of draft.

20

1% of draft

=

=

=

$10,

$994.50.

99.45%

9. What is the cost of a 30-day draft of $1100, premium

%, and interest at 4%?

10. A 90-day draft of $2000 was purchased at a premium

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