458. An express money order is similar to a postal order, the rates being the same. It is negotiable.

459. Telegraphic money order. — Telegraph companies make transfers in small amounts between their offices, subject to the following charges: 1% on all sums of $25 or over, and 25¢ for any smaller sum, a further charge being added for telegraphic service not to exceed double the usual rate for a 15-word message between the two places.

Banks and express companies transfer for their customers by telegraph when haste is necessary.

460. Exchange by check. - A personal check drawn on a bank in which the drawer has money deposited may be sent by mail. The payee gets it cashed at some bank and this bank collects it from the bank on which it was drawn, sometimes charging a small fee, called exchange, for collecting.

461. Exchange by bank draft. The following illustrates the ordinary bank draft, or bill of exchange, which is simply a check drawn by one bank on another:

The person who signs a draft is the drawer; the one who is directed to pay it, the drawee; and the one to whom it is to be paid, the payee.

462. Banks usually keep money on deposit in some bank, called a correspondence bank, in a large money center.

The draft shown on the previous page is an order on the Commercial Bank of New York to pay Henry Adams or his order $500, and to charge the amount to the account of the First National Bank of Ft. Wayne. By indorsing it Mr. Adams may get it cashed at any bank, which in turn may collect the cash from the New York bank or, what is more likely, deposit the draft as a credit to draw on in the New York bank. The latter may charge it to the Ft. Wayne bank's account, if it has one, or it may collect of the Ft. Wayne bank, or deposit the draft there as a credit. In the end, however, the Ft. Wayne bank must pay $500 in credit or money, though in the meantime it has had the use of the $500 paid in by the original purchaser, and has earned a fee charged for exchange.

463. Bankers' association money orders are bank drafts drawn by certain banks on a circuit of banks located in important money centers.

464. Collecting by draft. Suppose that W. C. Atkins of Chicago owes John Best of Boston $500 on account, and that Mr. Best wishes to collect the debt at once. He may draw on Mr. Atkins by means of a commercial draft:

$500 no

100

Boston, Mass., Jan. 6, 1906.

at sight pay to the order of Merchants' Bank of Boston

The Merchants' Bank of Boston cashes this draft and sends it to some Chicago bank for collection. The Chicago bank either collects of Mr. Atkins and remits to the Boston bank, or if payment is refused, returns the draft to the Boston bank, which in turn notifies Mr. Best to "take up

the draft" and refund the money advanced on it. Some banks would not have cashed the draft until collected. In either case charges for collection would be deducted from the face of the draft.

Mr. Best might make the paper payable to "Self." It would then be merely a demand for payment, but would become a sight draft by his indorsement.

465. Suppose that Mr. Atkins' debt were not due for sixty days. Instead of "at sight" the draft would read "sixty days after sight." Such a commercial draft is called a time draft.

When presented to Mr. Atkins, if he intended to pay it, he would write across the face in red ink "Accepted" with the date, and sign his name underneath. The draft is then called an acceptance and is equivalent to a promissory note, due sixty days after the date when it was accepted.

An acceptance may be sold by indorsing it and discounting it for the time it has to run. In discounting, banks sometimes add several days to the discount term to allow for time to collect; they may also charge exchange. Time drafts are sometimes made payable at a given time after date. Then the acceptor does not write the date of acceptance.

466. Exchange Market. - Bills of exchange are credits, and when indorsed may be bought and sold. The business of buying and selling them is carried on largely by banks and in the open market. Hence, as with any other commodity, when the supply offered on the market exceeds the demand, the price goes down and exchange is at a discount, or below par; but when the demand exceeds the supply, the price goes up and exchange is at a premium, or above par.

Thus, when the Chicago banks have large sums on deposit in New York banks and wish to use part of their money at home, they will sell sight drafts on New York at favorable rates, probably at par for small amounts, and slightly below par for large amounts.

When the deposits of Chicago banks in New York banks are not suffi cient to meet the demands made upon them for New York drafts, they are obliged to send money to New York by express at considerable expense and they must charge something above par for their New York drafts.

467. How Exchange is Quoted. The price of domestic exchange (for sight drafts) is quoted either at par, at a certain per cent premium or discount, or at a certain amount of money, premium or discount, for $1000.

Explain the following exchange market quotations taken from a New York newspaper:

468. 1. At the rates quoted above, how much will New York exchange for $5000 cost in Boston? in Chicago? In which city are the banks more eager to sell New York exchange?

2. Find the cost of a draft on a New York bank for $10,000, in New Orleans; in Savannah.

3. A cotton dealer in Savannah sold some cotton to a New York firm and drew on them at sight for $12,000. A Savannah bank bought the bill of him at a discount of 50¢ per $1000. How much did the bank pay for the bill?

4. At this time the Savannah bank had very little money in New York to draw against. Selling bank drafts on New York meant expressing money to meet them. Consequently, the bank charged a merchant who applied for a draft for $12,000, a premium of 75 per $1000. Find the selling price of this draft. Find the cost of a postal or an express money order for: 5. $3.10 7. $ 5.75 9. $21.80 11. $50 13. $62.75 6. $8.50 8. $11.20 10. $17.65 12. $66 14. $99.80 15. How much will it cost Mr. Drew to telegraph $200 to his son in New Haven, including a 12-word message at 25-2?

WRITTEN EXERCISES

469. 1. Find the cost of a draft for $750 at

% premium. 2. What will be the cost of a draft for $125,340 when exchange is at 1% discount?

3.

A. T. Stewart of Kalamazoo draws on W. Wetmore of New York for $3500. The bank in Kalamazoo charges % for collection. Find the proceeds of the draft.

Write the draft, supplying necessary details.

4. What will be the proceeds of a draft for $2000, payable 30 days after date, discounted at 6%, if 6 days are allowed for the collection and the return of the money?

5. The Cleveland Electric Co. sent to Chas. Avery, their salesman in Nashville, a New York draft on the First National Bank for $200, dated June 27. The draft was cashed for Mr. Avery by the proprietor of a hotel, James Hanlon, who deposited it in the Cotton Exchange Bank. This bank forwarded it to the First National Bank of New York as credit. Write the draft and its indorsements.

6. Find the proceeds of a 60-day draft for $1885.50, discounted at 7% for the full term, if the bank charges 80 in addition for collection.

7. C. M. Clay of Charleston sold 200 barrels of tar @ $1.80, 50 casks of crude turpentine @ $3.20, and 250 barrels of D resin, @ $2.05, to Hines & Co., New York. Hines & Co. remitted with the order a sight draft for $275 on Colfax & Son, Charleston, and authorized C. M. Clay to draw at 60 days' sight for the balance. Write both drafts, supplying suitable dates.

8. C. M. Clay discounted the second draft for 63 days at 6% and was charged % for exchange. Find the net proceeds of 32% the shipment.

THIRD PROG. AR. 18