ARBITRATION OF EXCHANGE.

708. Arbitration of Exchange is the process of computing the cost of exchange between two places by means of one or more intermediate exchanges. Such ex

change is said to be indirect or circuitous.

By this computation the relative cost of direct and indirect exchange is ascertained. Sometimes, owing to the course of exchange between different places, it is more advantageous to remit by the latter than by the former.

Arbitration is either simple or compound.

709. Simple Arbitration is that in which there is but one intermediate place.

710. Compound Arbitration is that in which there are several intermediate places.

11. 1. I owe 1500 marks to a merchant in Frankfort. Should I remit directly from New York, or through London, exchange on Frankfort being 94, on London, 4.87, and in the latter place on Frankfort 20.75 marks to the pound, and the London brokerage %?

OPERATION.-$.94 × 1500÷4=$352.50, cost of direct exchange.

1500 marks ÷ 20.75 marks

£72.29 + % = £72.38.

$4.87

72.38 = $352.85.

=

$352.85 $352.50 $.35, loss by ind. exchange.

2. What will it cost to remit from Boston to Berlin 750 marks, by indirect exchange, through Paris, exchange in New York on Paris being at 5.15, and 4 marks at Paris being worth 4.91 francs, the brokerage being at 1%?

3. What will it cost to remit 2500 guilders from New York to Amsterdam, through London and Paris, the rates of exchange being as follows: at New York on London 4.83, at London on Paris 24.75 francs to the pound, and at Paris on Amsterdam 2.09 francs to the guilder, brokerage at London and Paris 4% each ?

ANALYSIS. Since the members of each equation are equal, the product of the corresponding members of any number of equations are equal; hence, the product of all the second members divided by the product of all the first members except one, must give that member, which is the value required.

4. A merchant in St. Louis directs his agent in New York to draw upon Philadelphia at 1% discount, for $1500 due from the sale of mdse.; he then draws upon the New York agent, at 2% premium, for the proceeds, after allowing the agent to reserve 1% commission. What sum does he realize from his mdse.?

By cancellation, .15 x 99 x 102 x .995 $1507.13.

=

ANALYSIS.-$100 on Philadelphia $99 on N. Y., and $100 on

N. Y.

$102 on St. Louis; and since the agent reserves % commission. $1 realized $.995 net proceeds. Arranging, canceling,

=

and multiplying, we find the result to be $1507.13.

RULE.-I. Represent the required sum by (x), with the proper unit of currency affixed, and place it equal to the given sum on the right.

II. Arrange the given rates of exchange so that in any two consecutive equations the same unit of currency shall stand on opposite sides.

III: When there is commission for drawing, place 1 minus the rate on the left if the cost of exchange is required, and on the right if proceeds are required; and when there is commission for remitting, place 1 plus the rate on the right, if cost is required, and on the left, if proceeds are required.

IV. Divide the product of the numbers on the right by the product of the numbers on the left, canceling equal factors, and the result will be the required sum.

Commission for drawing is commission on the sale of a draft; commission for remitting is commission on the purchase price of a draft.

The above method of operation is sometimes called the Chain Rule.

5. If at New York exchange on London is 4.841, and at London on Paris it is 25.73 francs to the £, what is the arbitrated course of exchange between New York and Paris?

6. If in London exchange on Paris is 25.71, and in New York on Paris it is 5.15, what is the arbitrated course of exchange between New York and London?

7. A banker in New York remits $5000 to Liverpool by indirect exchange, through Paris, Hamburg, and Amsterdam, the rates being as follows: in New York on Paris 5.18 fr. to the dollar, in Paris on Hamburg 1.22 fr. to the mark, in Hamburg on Amsterdam 1.70 mark to the guilder, and in Amsterdam 11.83 guilders to the pound. sterling. How much sterling will he have in bank at Liverpool, and how much does he gain by indirect exchange, sterling being worth in New York 4.83 ?

8. A merchant in Philadelphia owes a correspondent in Paris 35000 francs. Direct exchange on Paris is 5.15; but exchange on London is 4.83, and London exchange on Paris is 25.12. Allowing 1% commission for brokerage at London, which is the more advantageous way to remit, and by how much?

9. An American resident at Amsterdam wishing to obtain funds from the U. S. to the amount of $4500, directs his agent in London to draw on Philadelphia, and remit the proceeds to him in a draft on Amsterdam, exchange on London in Phil. selling at 4.87, and in London on Amsterdam 11.17 guilders to the pound sterling. If the agent charges commission at 1% both for drawing and remitting, how much better is this arbitration than to draw directly on the U. S. at 414 cents per guilder?

10. A speculator residing in Cincinnati, having purchased 165 shares of railroad stock in New Orleans, at 75%, remits to his agent in N. York a draft purchased at . 2% premium, directing the agent to remit the sum due on N. Orleans. Now, if exchange on N. Orleans is at 3% discount in N. Y., and the agent's commission for remitting is %, how much does the stock cost in Cincinnati ?

CUSTOM-HOUSE BUSINESS.

712. A Custom-House is an office established by government for the transaction of business relating to the collection of customs or duties, and the entry and clearance of vessels.

713. A Port of Entry is a seaport town in which a custom-house is established.

714. The Collector of the Port is the officer appointed by government to attend to the collection of duties and to other custom-house business.

715. A Clearance is a certificate given by the Collector of the port, that a vessel has been entered and cleared according to law.

By the entry of a vessel is meant the lodgment of its papers in the custom-house, on its arrival at the port.

716. A Manifest is a detailed statement, or invoice, of a ship's cargo.

No goods, wares, or merchandise can be brought into the United States by any vessel, unless the master has on board a full manifest, showing in detail the several items of the cargo, the place where it was shipped, the names of the consignees, etc.

717. Duties or Customs are taxes levied on imported goods.

The general object of such taxes is the support of government. but they are also designed sometimes to protect the manufacturing industry of a country against foreign competition.

718. A Tariff is a schedule showing the rates of duties fixed by law on all kinds of imported merchandise Duties are of two kinds, Specific and Ad Valorem.