16. The proceeds of the draft in the preceding example are sent to Chicago by means of a bankers' draft bought at a premium of 35. What is the face of the draft?

17. A lumber company in Montana sells a bill of lumber to a firm in St. Paul for $28,400, payable in 90 days in St. Paul. Draft for this amount is accepted and discounted in St. Paul, at the rate of 6%, 83 days before it is due. What are the proceeds?

18. A New York broker sold a bill of goods for a St. Louis shipper for $24,500. After deducting 1% as his own commission, he remits the remainder to St. Louis. If exchange is at 15 discount, how much does the St. Louis shipper get?

535. Service of the Banks in Paying Bills at a Distance. The full reason why payments are made by check, by bank draft, or by ordinary commercial drafts, is rather difficult to understand. We can acquire a partial comprehension of it, however, by studying a special case.

Throughout the year breadstuffs and meats are being shipped east from the North Central States. At the same time, clothing, shoes, and other manufactured goods are being shipped into the North Central States from New England and the Middle Atlantic States. Each shipment is made on a separate order, and payment must be made for it. If cash were to be sent in both directions to pay for each shipment, an immense amount of cash would be shipped in both directions each month or even each day. Indeed, it would be perfectly possible to have millions in actual money shipped from New York to Chicago the same day that an equal number of millions were shipped from Chicago to New York.

This waste of work and expense is saved by the banks. If merchants in Chicago owe one million to merchants in New York, and at the same time other merchants in New York owe a million to merchants in Chicago, the banks by means of their drafts enable both millions to be paid without transferring a single cent in cash.

The net result is that if the total of the payments to be made by Chicago people in New York is about the same as the total of the payments to be made by New York people in Chicago during any comparatively short period of time, say one or two months, then no cash is sent. If, for a long time, however, the total payments to be made by Chicago in New York exceed by a considerable amount the total payments to be made by New York in Chicago, then and only then does actual shipment of money take place. A full study of this subject is taken up in courses on Political Economy.

DRILL IN FUNDAMENTALS

Copy from dictation, add, and check.

Copy from dictation, divide, and check. Get quotients to the

MISCELLANEOUS WORK

Reduce the fractions to per cents. Find each per cent exactly or to the nearest hundredth of one per cent.

Find the rates of income to the nearest hundredth of one per cent

53. A note for $3800 bearing interest at 7% and due in 90 days is discounted at the bank at 5% 78 days before it is due. Find the net proceeds of the note.

54. Find the proceeds of a four months' note for $12,500 bearing interest at 5% if it is discounted at 6%, 75 days before it is due.

55. Bought Lackawanna Steel at 763. What is the rate of income on the investment if the rate of dividend is 4%?

CHAPTER XXXVII

FOREIGN EXCHANGE

536. Reasons for Foreign Exchange.

Our immense foreign trade requires extensive means of settling international obligations. Foreign exchange exists, therefore, for the same reasons that domestic exchange exists (see § 535). Below is a customary form of a foreign draft or bill of exchange.

$8650

BROWN BROTHERS & CO

Biston, JUL 31 1917

Thirty days after sight of this FIRST

of Exchange A second unpuit.) pay to the order of

John Doe

Eighty-six hundred and fi
and fig
fifty

Vahu waived which place

MESS:BROWN, SHIPLEY&CO.

Pounds Sterling.

PER PRO BROWN BROTHERS &

$8650

BROWN BROTHERS & CO

Besten, JUL 31 19:7

this

Thirty days after sight //the SECOND

of Exchange (first unpruit.) pay to the enter ef

John Doe

Eighty-six hundred and fifty

fifty

codin neccierd which place & recount of

MESS BROWN.SHIPLEY& CO.

Pounds Sterling.

PER PRO BROWN, BROTHERS & CO

Despach

537. Bill of Exchange. A foreign bill of exchange is usually made out in duplicate, sometimes in triplicate. In the latter case one is kept by the remitter as a memorandum. The first and second bills are. sent in different mails to insure that at least one shall reach its destination. The payment of either bill invalidates the other.

538. Clear Bills and Documentary or Loaded Bills. As in the case of domestic bills, a bill of exchange may be attached to some other document, such as a bill of lading, which latter will be turned over to the consignee only on condition that the bill is paid or accepted. (See § 526.) Such bills are called documentary or loaded bills. In case no document is attached to the bill it is a clear bill.

539. Intrinsic Par of Exchange. Gold is now the standard of values over nearly the whole civilized world. The intrinsic par of exchange is determined by the ratio of the amount of pure gold in the principal coins.

Thus the pound sterling contains 113 grains of pure gold, while the United States dollar contains 23.22 grains of pure gold. Hence one pound is worth 113 divided by 23.22 = 4.8665 in U. S. dollars.

Comparing the five-franc piece and the dollar, we get $1 = 5.180. Similarly 4 marks = $.9533.

540. Course of Exchange. The actual rate of exchange on any one country varies from time to time. The rate in force at any one time is called the course of exchange or the rate of exchange at that time. The reasons for variation in the rate of foreign exchange are the same as the reasons for variations in domestic exchange (see § 532). The rates of exchange on London, Paris, and Berlin are the most important. They are quoted in the following forms:

These are the forms in which the quotations are given both in the United States and in Europe. The equivalent of 1 pound sterling is given in dollars, the equivalent of 1 dollar in francs and the equivalent of 4 marks in dollars.