4. What is the value in currency of 2000 marks, reckoning gold 110 and exchange at 96? Ans. $528.

5. Purchased a Bill of Exchange on Hamburg for 1800 marks, at 95: required the cost of the bill. Ans. $428.061.

6. What amount of exchange on Bremen can be bought for $5000 currency, gold at 109, and exchange at 95?

Ans. 19226.14+ marks.

7. If in London exchange on Germany sells at 20.5 marks for £1 sterling, what is the cost in English money of 1000 marks?

NOTE.-Sterling bills are frequently sold in this country for remittance to Germany, instead of direct exchange.

8. If at Frankfort the exchange value of £1 sterling equals 20.4 marks, how much sterling must be remitted to Frankfort to pay a debt of 3600 marks? How much will it cost in our coin if exchange on London sells at $4.85?

Ans. £176 9s. 4d.+ $855.86+.

9. Suppose in the above example direct exchange sells here. at par, what would a bill for 3600 marks cost?

Ans. $857.52.

10. Find the exchange value of 1200 marks, at par, at 95, 951, at 952, at 96.

Ans. $285.84; $285; $286.50; $287.25; $288.

at

11. Find the exchange value in marks of $1600, at par, at 95, at 951, at 951, at 96.

Ans. 6717.04+ marks; 6736.84+ marks; 6724.40+ marks; 6701.57marks; 6666.66+ marks.

12. Find the value in marks of $5500 in currency, exchange 951, and gold 110.

13. Find the cost in currency of exchange for 4500 marks, exchange at 95, and gold at 109.

EXCHANGE ON AMSTERDAM.

599. Bills of Exchange on Amsterdam are drawn payable in Florins (or Guilders). The money of account consists of Florins and Centimes. 100 centimes equal 1 florin. The par value of the florin is 40.5 cents.

EXAMPLES FOR PRACTICE.

1. What will a draft on Amsterdam for 300 florins cost at 401? Ans. $120.37 +.

2. What is the value in exchange on Amsterdam of $800 at 411? Ans. 1945.28+ florins. 3. Find the cost in currency of a Bill for 1000 florins, exchange at 40, and gold at 108. Ans. $437.40.

4. What amount of exchange on Amsterdam can be purchased for $850 in currency, exchange at 414, and gold at 110 ? 5. Received $1000 in gold to remit to Amsterdam. If I charge 1% brokerage, and the rate of exchange is 414, how many florins shall I remit ?

NOTE. To ascertain the fractional parts of a unit in any of the foregoing currencies, consult the Table on page 233.

ARBITRATION OF EXCHANGE.

600. Arbitration of Exchange is the process of computing the cost of indirect exchange between two places, by means of remittances through one or more intermediate places.

The object of arbitration of exchange is to ascertain, by a comparison of the current rates between several places, the best mode of drawing and remitting bills. If, for example, owing to the contingencies of trade, or other causes, the rate of exchange between Paris and London is such that a bill on Paris, purchased in the United States, will, when collected and the proceeds invested in exchange of Paris on London, buy a larger amount of sterling exchange than the original sum will purchase in the United States, there may be an advantage in remitting to London through Paris. This is the philosophy of indirect exchange.

Arbitration is termed either Simple or Compound.

601. Simple Arbitration consists in finding the rate or price of exchange between two places, through a third.

602. Compound Arbitration consists in finding the rate or price of exchange between two places, through several others.

EXAMPLES.

1. A merchant in the United States, wishing to remit $4000 to London, desires to ascertain whether it will be more to his advantage to purchase direct exchange on London, or make his remittance through Paris. He finds on inquiry that exchange on London is quoted at 4.85, on Paris 5.16, and that the prevailing rate between Paris and London is 24.50 francs per pound sterling: how much will be gained by remitting to London, through Paris, at these rates, allowing 4% for brokerage in Paris?

$4000 will purchase direct exchange on London for £824 14s. 10d. $4000 will purchase direct exchange on Paris for 20640 francs. Deducting brokerage, %...

25.80

Net proceeds to be invested in Paris.... 20614.20 francs. 20614.20 francs will purchase exchange, Paris on London, for £841 7s. 11d.

Ans. Gain by the indirect exchange, £16 13s. 1d.

2. A man in Chicago has $1500 due to him in New Orleans, and wishes to negotiate a draft for the same. Direct exchange on New Orleans is 1% discount; exchange on New York is 11% premium, and at New York exchange on New Orleans is % discount: how much will be gained by drawing on New York and paying 1% brokerage for re-exchange, and for what amount must he draw on New York?

Ans. By direct exchange he would receive $1485. For his draft on New York he would receive $1522.50. The brokerage in New York equals the discount on exchange on New Orleans; therefore the face of the draft will be $1500. Gain by indirect exchange, $37.50.

603. Problems in either Simple or Compound Arbitration are readily solved by the application of the rule of Conjoined Proportion or Chain Rule.

RULE. Arrange the terms in the form of equations, and distinguish the members as antecedents and consequents.

1. Write the term to which a corresponding value is sought in the solution of the problem, which is called the term of demand.

2. To the left of this, on a line below, enter the term which is of the same denomination as the term of demand, and on the same line, connected by the sign of equality, the given term of equal value.

3. Under the first antecedent, enter the term which is of the same denomination as the last consequent, and on the same line, as before, its equal in value; and so on.

4. Divide the product of the consequents by the product of the antecedents, and the quotient will be the answer, in the same denomination as the last consequent.

NOTE.--When the final remittance must be a given sum, and brokerage is deducted for re-investing and remitting at the intermediate places, place 1, minus the rate of brokerage, on the left for every deduction, to find the amount required for the original investment; but when the proceeds of a certain sum remitted are required, place 1, minus the rate of brokerage, on the right for each deduction. To find the cost of exchange, when brokerage is paid or charged on the face of a bill, for re-exchange, place 1, plus the rate of brokerage, on the right for each payment, and to find the proceeds of a bill, place it on the left.

EXAMPLE.

I wish to remit 5000 marks to Hamburg. I can remit to Paris at 5 francs 16 centimes to the dollar; from Paris to London at 24 francs 50 centimes per £1; from London to Hamburg at 20.4 marks per £1; or I can remit to London at $4.86 per £1, and from London to Hamburg at 20.4 marks per £1. Suppose the direct exchange on Hamburg to be 23.8 cents per mark, which is the more profitable course of making the remittance-through Paris and London, through London only, or directly to Hamburg, allowing 1% brokerage for each reexchange?

The question may be stated thus:-What is the value in federal money of 5000 marks, if 20.4 marks £1, and £1 = 24.50 francs, and 5.16 francs = $1? and what is the value in federal money of 5000 marks, if 20.4 marks = £1, and £1 $4.86, taking into consideration also the charges for brokerage? Lastly, what is the cost of 5000 marks, at 23.8 cents per mark?

Applying the rule, we have the following

The cost of exchange through Paris and London will be $1169.58.

Ans. It will be more profitable to remit through Paris and London. Gain over exchange through London, $24.58.

$1169.58 will purchase a bill on Paris, at 5.16, for 6035.03 francs. Deduct brokerage, 4%,

Amount to be invested at Paris,

15.08
6019.95 francs.

6019.95 francs will purchase a bill on London, at 24.50, for £245.70.

Deduct brokerage, 1%,

Amount to be invested at London,

.60.

£245.10.

£245.10 will purchase a bill on Hamburg, at 20.4, for 5000 marks.