349. The Checking Account. The usual account which a business house has in banks is what is called a " checking account." Money in a checking account may be withdrawn at any time by presenting a check for the amount which it is desired to withdraw. A BANK CHECK

350. Making Out a Check. There are certain features of a check which should be noticed: The amount of the check is written in figures and also in words. To make it difficult to raise the check the figures are written near the $ sign, and the words specifying the sum begin close to the left end of the check.

This check directs the bank to pay to James B. Baker the sum of $350.50. When the check is paid the bank deducts this amount from Mr. Snyder's account.

351. Clearing House. In the large cities every bank during a day's business cashes checks on many other banks. At some time during the day, representatives of all the banks meet in what is called the clearing house to settle the mutual indebtedness thus resulting.

352. Balance in Bank. The amount of money which one has in a bank is called his balance in the bank. The balance is always recorded on the check stub. Every deposit is added and every check drawn is subtracted. This enables one to see at a glance how much is left. Frequently one page of stub contains the record of the amount brought forward and of three or four checks drawn out. Find the balance to be carried forward by the method of § 32.

353. Banks Loaning Money. One of the chief functions of a bank is to loan money, and this is also the bank's chief source of income. A bank which has $100,000 in deposits may loan out $75,000, keeping only $25,000 in cash. This is possible because experience has shown that only a small fraction of the total deposits will be drawn out in the course of a few weeks.

354. Bank Discount. — The bank collects interest at the beginning of the period for which the loan is made instead of at the end as in ordinary loans. The deduction of interest at the beginning of the period is called bank discount.

Hence we see that bank discount is more favorable to the lender than ordinary interest.

355. Proceeds of a Note. The amount left after the bank discount is deducted is called the proceeds of a note. The time which the note has to run from the time it is discounted until it is due is called the term of discount.

WRITTEN EXERCISES

Find the proceeds of each of the following notes:

356. Discounting Interest-bearing Notes. - When When money is borrowed from a bank on ordinary bank discount the notes given do not bear interest. The bank collects its interest by discounting the face of the note. However, interest-bearing notes obtained in the course of business are frequently discounted at the bank. In this case the discount is computed on the amount of the note at maturity. Problem. A note for $7000 bearing interest at 7% due in 90 days is discounted at the bank at 6%, 45 days before it is due.

357. Call Loans.- Loans on which payment may be demanded at Notes given for call loans read "On (See page 246.) The rates of interest

any time are called call loans. demand I promise to pay." on call loans are usually lower than on time loans. A bank can afford to make a call loan to a customer of unquestioned financial responsibility at a very low rate because the certainty that the money may be had any day makes it as good as cash in the vault for the purposes of the bank.

Interest on call loans is computed the same as interest on ordinary loans and not as bank discount, because the time of the loan is not known when it is made.

Problems in interest arising from call loans are more likely to involve difficulties arising from the number of days than those connected with ordinary time loans.

WRITTEN EXERCISES

Find the amount due on each of the following loans.

358. Corporations.

CHAPTER XXVI

STOCKS AND SHARES

A stock company or corporation is created by law and is endowed by it with certain definite powers. These powers are described in a document called the charter of the corporation. The corporation may do all things which are naturally incidental to its main business. Thus, it may contract debt, sue in the courts, and be sued.

359. Capital Stock. The property of the corporation is represented by what is called its capital stock. The capital stock is divided into shares, usually $100 each. This nominal value is the par value of its shares. The owners of these shares are called the stockholders and are the proprietors of the corporation. The stockholders elect a board of directors who in turn elect the executive officers of the company.

A stockholder has one vote for each share. Thus a few large stockholders may control a corporation though thousands of persons own shares in it.

Some of the older stocks, notably that of the Pennsylvania Railway Company, are $50 per share. (See copy of stock certificate on the opposite page.) Shares in minor corporations are often as low as $1 par value. This is notably true of the stocks of highly speculative ventures.

360. Stock Transferable. The stock certificate is the evidence of ownership of stock. (See page 255.) This may be sold, bequeathed, or inherited the same as any other property.

Thus the stock company is a perpetual concern and the stock is in no sense an obligation which the company is expected to pay at a future date.