FOREIGN EXCHANGE 586. Foreign exchange does not differ in principle from domestic exchange. A foreign bill of exchange is similar to a bank draft and is payable in the money of the country on which it is drawn. Commercial drafts are also drawn and accepted as in domestic exchange. 587. Foreign bills of exchange are usually written in duplicate, called a set of exchange, illustrated as follows: EXCHANGE FOR New York, U.S.A., Dɛe. /, 1906. £200.8.5 Three days after sight of this First of Exchange (second unpaid) Pay to the order of firam Putnam~~~~ Two hundred Pounds 8/5 Sterling~~ Value received and charge the same to account of To Brown, Shipley & Co., No. 527 London, Brown Brothers & Co. In the duplicate, "Second of Exchange (first unpaid)" is substituted for "First of Exchange (second unpaid)," and "2" for "1" in the left margin. When either one of the set is paid, the other becomes void. 588. Par of exchange between two countries is the value of the monetary unit of one expressed in that of the other. The table in § 417 gives the par of exchange in the United States, on England, France, and Germany. 589. How foreign exchange is quoted. Exchange on: England, by giving the cost of a bill of exchange for £1; thus, 4.87 means that a bill for £ 1 costs $4.87. France (and other countries using the same monetary system), by giving the number of francs of exchange that can be bought for $1: thus, 5.18 means that 5.18 fr. can be bought for $1. Germany, by giving the number of cents that 4 marks of exchange cost; thus, 94 means that 4 marks cost 94%. Newspapers usually give exchange rates for cable transfers, demand bills, and sixty-day bills, thus: 590. Foreign exchange for small amounts is usually effected by means of international express and postal money orders, at fixed rates. 591. Letters of credit. A person intending to travel abroad may deposit funds with an international banking house to draw against, and receive a letter of credit guaranteed by the bank. The purchaser signs several signature blanks, one of which is sent to each correspondent bank. When he presents the letter at any one of these banks he is asked to sign a draft or check for the amount he wishes to draw. The cashier compares the signature with that on the signature blank, and if they correspond, the money is paid and charged on the letter, which is returned to the owner. Letters of credit are usually written in sterling money, the holder paying London exchange when he purchases it, and a further exchange when he draws in any other country than England. 592. Travelers' checks. These are guaranteed checks issued in denominations of $10, $20, $50, $ 100, and $200, by banks and express companies, at a fixed rate of 1% of the face value. The purchaser signs them on the face when purchased, and on the face or back when cashed. Identification is by comparison of signatures. These checks are readily received at European hotels, railroads, and business places. WRITTEN EXERCISES 593. 1. Find the cost of a cable transfer of 265 fr. at 5.167. SUGGESTION. -One franc costs $1÷ 5.167. 2. How much will a 60-day bill for 250 M. cost at 941? SUGGESTION. One mark costs of $.941. 3. Find the cost of a demand bill for £ 75 6s. 4d. at 4.851. SUGGESTION. See exercise 11, page 320. Find the cost, to the nearest cent, of exchange for : 4. £1200 @ 4.8365 5. £1525 @ 4.8420 6. £ 95 128. @ 4.87 7. £ 225 108. 2d. @ 4.835 8. 10,000 fr. @ 5.18 9. 25,000 M. @ 95 10. 1224.75 fr. @ 5.197 11. 4520.65 M. @ 943 12. A cotton exporter in Mobile drew a 60-day bill on London for £ 1075 against a shipment of 100 bales of cotton, and sold the bill at the bank at 4.837. Find the proceeds. 13. An American sent to his family in Milan a bill for 2000 lire, exchange at 5.19. What was the cost of the bill? 14. Find the cost of £ 5 at 4.87, sent to Dublin at Christmas time by international money order, the fee being 30 ¢. 15. Find the cost of travelers' checks for $4000, at 1%. 16. The value of these checks in foreign money was according to the following values, printed on a 20-dollar check: The purchaser cashed $700 in checks in England, $900 in France, $400 in Germany, $200 in Denmark (crowns), $500 in Belgium (francs), $200 in Holland (florins), and $600 in Italy. Find the amount of money of each kind that he received and the amount refunded to him at the end of the trip. 17 An importer purchased a sight draft on London for £15,000 at 4.863. How much did it cost him? 18. Suppose that he had purchased the draft through a broker and had obtained a slightly lower rate, 4.8640. The brokerage being $5 per £10,000, how much less would the draft have cost him? 19. Find the proceeds of a bill for 25,600 marks sold through a broker at 942, brokerage 4%. 1 20. A firm in Newark drew on a firm in Rio Janeiro at 60 days' sight for £25,000, representing a shipment of machinery, and sold the bill through a New York broker at 4.837, brokerage $5 per £10,000. What were the proceeds? 1% 21. A New York bank contracted with cotton shippers in the South for the purchase of £100,000 of bills of exchange for cotton at 4.811, and deposited them with its London correspondent for collection. The London bank charged % for collection and credited the proceeds to the New York bank. The New York bank drew demand bills against this credit and sold them in the open market at 4.857. Find the profit. 22. On Nov. 24, when money was worth 5%, a banker invested £10,000 in 60-day bills on London at 4.80. How much interest could he have obtained for this money, if he had not bought the drafts? 23. He sent the bills to London for acceptance. They were accepted and returned to him. He held them until they became due, when he sold them as demand bills at 4.87. How much did he gain? = 24. A grain shipper sold 22,500 centals of wheat (1 cental 100 pounds) at $1.60 per cental to a merchant in Havre, France, and drew on him for the amount at 5.204. Find the face of the bill. STOCKS AND BONDS 594. Corporations. When a number of persons wish to engage in a business requiring a large capital, they usually raise as much capital as they can among themselves, perhaps soliciting subscriptions from others, and organize a stock company, or corporation. A corporation is authorized under the law; has certain powers and privileges; is subject to certain limitations; and is regarded by the law as a single person engaged in a stated business with a declared capital, or stock. 595. Shares. The stock of a corporation is divided into equal parts, called shares. A share is usually $100, but it may be more or less than that sum; unless stated to the contrary the face value of a share, in this book, means $100. If the capital of a corporation is $400,000, it is divided, perhaps, into 4000 shares of $100 each. 596. Stockholders. A person who becomes the owner of one or more of these shares is called a shareholder, or a stockholder. Corporations are managed by officers elected by the stockholders, a stockholder having one vote for each share he owns. A stockholder's liability for the debts of the corporation is usually limited to the original value of the stock he owns. Stockholders of national banks, however, are responsible for double the original value of their stock. 597. Certificates of Stock. Every stockholder receives a certificate showing the number of shares to which he is entitled and the original, or par value, of each. |