Find the face of a draft which cost

10. $575.41, premium 23%.

11. $731.70, premium 1%. 12. $483.20, premium, %.

13. $819.88, discount 1%. 14. $273.847, discount 3%. 15. $315.65, discount 1%.

16. What is the cost of a draft for $400, payable in 3 mo., premium 13%, the bank allowing interest at 4% until the draft is paid?

SOLUTION.-A sight draft for $400, at 11% premium, costs $406, but the bank allows interest at 4% on the face, $400, for 3 mo., which is $4. Hence the draft will cost $406 - $4 = $402.

Find the cost of drafts

17. For $700, premium 4%, time 60 da., interest at 3%. 18. For $1600, premium 14%, time 50 da., interest at 4%. 19. For $2460, discount %, time 90 da., interest at 41%. 20. For $1800, discount 4%, time 30 da., interest at 5%.

21. A merchant in Albany wishing to pay a debt of $498.48 in Chicago, sends a draft on New York, exchange on New York being at 1% premium in Chicago; what did he pay for the draft?

SOLUTION. The draft cashed in Chicago commands a premium of 1% on its face. The man requires, therefore, to purchase a draft whose face plus % of it equals $498.48. Hence, according to (506—5), the amount paid, or face of the draft, is $498.48 ÷ 1.005 = = $496.

22. Exchange being at 983 (14% discount), what is the cost of a draft, time 4 mo., interest at 5%?

23. The face of a draft which was purchased at 11% premium is $2500, the time 40 da., rate of interest allowed 4%; what was its cost?

24. My agent in Detroit sold a consignment of goods for $8260, commission on the sale 24%. He remitted the proceeds by draft on New York, at a premium of 1%. What is the amount remitted?

FOREIGN EXCHANGE.

643. Foreign Exchange is a method of paying debts or other obligations in foreign countries without transmitting the money.

Observe, that foreign exchange is based upon the fact that different countries exchange products, securities, etc., with each other.

Thus, the United States sells wheat, etc., to England, and England in return sells manufactnred goods, etc., to the United States. Hence, parties in each country become indebted to parties in the other. For this reason, a merchant in the United States can pay for goods purchased in England by buying an order upon a firm in England which is indebted to a firm in the United States.

£400.

Form of a Bill or Set of Exchange.

NEW YORK, July 13, 1876. At sight of this FIRST of EXCHANGE (second and third of the same date and tenor unpaid), pay to the order of E. D. BLAKESLEE FOUR HUNDRED POUNDS STERLING, for value received, and charge the same to the account of

WILLIAMS, BROWN & Co.

TO MARTIN, WILLIAMS & Co., London.

The person purchasing the exchange receives three bills, which he sends by different mails to avoid miscarriage. When one has been received and paid, the others are void.

The above is the form of the first bill. In the Second Bill the word "FIRST" is used instead of "SECOND," and the parenthesis reads, “ First and Third of the same date and tenor unpaid." A similar change is made in the Third Bill.

644. Exchange with Europe is conducted chiefly through prominent financial centres, as London, Paris, Berlin, Antwerp, Amsterdam, etc.

645. Quotations are the published rates at which bills of exchange, stocks, bonds, etc., are bought and sold in the money market from day to day.

These quotations give the market gold value in United States money of one or more units of the foreign coin.

Thus, quotations on London give the value of £1 sterling in dollars; on Paris, Antwerp, and Geneva, the value of $1 in francs; on Hamburg, Berlin, Bremen, and Frankfort, the value of 4 marks in cents; on Amsterdam, the value of a guilder in cents.

646. The following table gives the par of exchange, or gold value of foreign monetary units, as published by the Secretary of the Treasury, January 1, 1876:

METHODS OF DIRECT EXCHANGE.

647. Direct Exchange is a method of making payments in a foreign country at the quoted rate of exchange with that country.

FIRST METHOD.-The person desiring to transmit the money purchases a SET of EXCHANGE for the amount on the country to which the money is to be sent, and forwards the three bills by different mails or routes to their destination.

SECOND METHOD.-The person desiring to transmit the money instructs his creditor in the foreign country to DRAW upon him, that is, to SELL a SET of EXCHANGE upon him, which he pays in his own country when presented.

648. 1. What is the cost in currency of a bill of exchange on Liverpool for £285 9s. 6d., exchange being quoted at $4.88, and gold at 1.12, brokerage 1% ?

$1.1225 x 1393.118 1563.77+

=

2. Since £1-$4.88, £285.475 must be equal $4.88 × 285.475

= $1393.118, the gold value of the bill without brokerage.

=

3. Since $1 gold is equal $1.12 currency, and the brokerage is 1%, the cost of $1 gold in currency is $1.1225. Hence the bill cost in currency $1.1225 × 1393.118 = $1563.77+.

What is the cost of a bill on

2. London for £436 8s. 3d., sterling at 4.843, brokerage %? 3. Paris for 4500 francs at .198, brokerage 1% ?

4. Geneva, Switzerland, for 8690 francs at .189?

5. Antwerp for 4000 francs at .175, in currency, gold at 1.09? 6. Amsterdam for 8400 guilders at 411, brokerage 1% ? 7. Frankfort for 2500 marks, quoted at .97?

8. A merchant in Boston instructed his agent at Berlin to draw on him for a bill of goods of 43000 marks, exchange at 24, gold being at 1.08, brokerage 1%; what did the merchant pay in currency for the goods?

METHODS OF INDIRECT EXCHANGE.

649. Indirect Exchange is a method of making payments in a foreign country by taking advantage of the rate of exchange between that country and one or more other countries.

Observe carefully the following:

1. The advantage of indirect over direct exchange under certain financial conditions which sometimes, owing to various causes, exist between different countries, may be shown as follows:

Suppose exchange in New York to be at par on London, but on Paris at 17 cents for 1 franc, and at Paris on London at 24 francs for £1. With these conditions, a bill on London for £100 will cost in New York $486.65; but a bill on London for £100 will cost in Paris 24 francs × 100 =2400 francs, and a bill on Paris for 2400 francs will cost in New York 17 cents x 2400 = $408.

Hence £100 can be sent from New York to London by direct exchange for $486.65, and by indirect exchange or through Paris for $408, giving an advantage of $486.65 – $408 = $78.65 in favor of the latter method.

2. The process of computing indirect exchange is called Arbitration of Exchange. When there is only one intermediate place, it is called Simple Arbitration; when there are two or more intermediate places, it is called Compound Arbitration.

Either of the following methods may be pursued:

FIRST METHOD. - The person desiring to transmit the money may buy a bill of exchange for the amount on an intermediate place, which he sends to his agent at that place with instructions to buy a bill with the proceeds on the place to which the money is to be sent, and to forward it to the proper party.

This is called the method by remittance.