EXCHANGE.

512. Exchange is the method of making payments in distant places by means of Drafts or Bills of Exchange.

513. Exchange is of two kinds, Domestic and Foreign. Exchange between two places in the same country is called Domestic or Inland Exchange; that between different coun tries is called Foreign Exchange.

514. A Draft or Bill of Exchange is a written order for the payment of money. In domestic exchange a bill is usually called a Draft.

515. A Sight Bill is one payable "at sight" or on its presentation. A Time Bill is one payable at a specified."

time after sight or after date.

516. The Indorsement of a bill is the writing upon the back of it, by which the payee transfers the payment to another.

A special indorsement is an order to pay the bill to some particular person, who is then called the Indorsee, and he alone can collect the bill. An indorsement in blank is the writing of the holder's name upon the back, which makes the bill payable to the bearer.

The person who signs the bill is called the Maker or Drawer; the person requested to pay is called the Drawee; the person to whom the money is to be paid, is the Payee; the person who has possession of the bill is called the Owner or Holder.

517. The Acceptance of a bill is the promise of the Drawee, when presented, to pay it at maturity. The Drawee accepts by writing across the face of the bill, "Accepted," with the date and his signature; the bill is then called an Acceptance, and is of the character of a promissory note

If a bill is protested for non-acceptance, the maker is under obligation to pay it immediately, although the time specified in it has not expired. Bills of exchange are entitled to "days of grace" according to the custom of the place where the draft is payable. In New York, Pennsylvania, etc., no grace is allowed, and in most States no grace is allowed on sight drafts. If a note is payable on demand it is legally due when presented, as bank-notes, etc.

In reckoning the time of maturity of a bill payable after date, the day on which it is dated is not included, and in the case of a bill payable after sight, the day of presentment is not included.

518. The Rate of Exchange is the rate per cent. which is reckoned upon a draft. The Course of Exchange is the current price paid in one place for bills of exchange upon another.

The brokerage is usually included in the quotation of exchange.

519. The Par of Exchange is the established value of the monetary unit of one country in the monetary unit of another; it is either intrinsic or commercial.

520. Exchange is at par when a draft or bill sells for its face; at a premium when it sells for more than its face; and at a discount when it sells for less than its face.

The rate of exchange between two places or countries depends upon the course of trade. If the trade between New York and Chicago is equal, exchange is at par. If New York owes Chicago, the demand in New York for drafts on Chicago is greater than the demand in Chicago for drafts on New York, hence the drafts are at a premium in New York. But if Chicago owes New York, the demand for drafts is less in New York than in Chicago; hence drafts in New York on Chicago are at a discount.

The reason why the banks in New York should charge a premium, is that they must be at the expense of actually sending money to the Chicago banks, or be charged with interest on their unpaid balance; the reason why the Chicago banks will sell at a discount is that they are willing to sell for less than the face of a draft in order to get the money owed them in New York immediately.

A check, draft, or certificate of deposit on a bank in the place where drafts are selling at a premium, is often sent to pay a debt in the place where drafts are selling at a discount, and such a check or draft will command a premium.

If the course of exchange is unfavorable in drawing, the discount is sometimes avoided by means of a circuitous exchange through several intermediate places between which the course is favorable.

DOMESTIC EXCHANGE.

521. Domestic or Inland Exchange is the exchange between two places in the same country.

522. The Base of an inland bill is the face; the Rate is the rate of premium or discount.

523. The Forms and Use of drafts may be seen by the following examples and explanations:

$8000.

FIRST NATIONAL BANK OF NEW ORLEANS,
NEW ORLEANS, Jan. 16, 1877.

At sight, pay to the order of John Smith, Eight Thousand
Dollars.
THOMAS HASKINS,
To the MERCHANTS' NATIONAL BANK,

PHILADELPHIa, Pa.

Cashier.

EXPLANATION. Suppose John Smith, of New Orleans, owes James Thomson & Co., of Philadelphia, $8000; he goes into a bank in New Orleans and gets the above draft. He then writes on the back of the note, "Pay to the order of James Thomson & Co.," signing his name, and forwards it to James Thomson & Co., in Philadelphia, who take it to the Merchants' National Bank, and writing the name of their firın on the back, receive the money.

$5600.

THIRD NATIONAL BANK,

ST. LOUIS, Mo., Jan. 11, 1877.

At ten days sight, pay to the order of H. B. Claflin & Co., Five Thousand Six Hundred Dollars, and charge the same to the account of JAMES SIMPSON,

To the FIFTH NATIONAL BANK,

NEW YORK.

Cashier.

EXPLANATION.-Suppose that Harvey Williams, of St. Louis, wishing to pay a debt of $5600 to H. B. Claflin & Co., of New York, buys the above draft on the Fifth National Bank of New York. He forwards it to H. B. Claflin & Co., who, having indorsed it, will present it at the bank. The "ten days after sight" means after acceptance. It should be presented to the bank upon which it is drawn as soon as received, when the cashier writes upon it "accepted," with the date of acceptance, and signs his name as cashier. This makes the bank liable for its payment, and is an agreement to pay it after ten days.

NOTE.-In this case and the following cases grace is reckoned only in the problems marked with a star.

CASE I.

524. To find the cost of a bill of exchange at sight, or on time.

1. What must I pay in Philadelphia for a draft of $300 on New Orleans, exchange being 14 per cent. premium?

SOLUTION.-At a premium of 1% the cost of exchange of $1 is $1+14 ct. - $1.015, and the cost of $800 is 800 times $1.015, which are $812. Hence for sight exchange we have the following

OPERATION.
$1.000

.015 rate of exchange 1.015= cost of $1.. 800 $812.000 Ans.

Rule. Find the cost of $1 by adding the rate to $1, wher. at a premium, or subtracting it, when at a discount; and multiply the result by the face of the draft.

2. What must be paid in New York for a draft of $2000 on Chicago at 30 days, exchange being 2% premium?

to be$1.015, and multiplying this by 2000, we have $2030, the entire cost. Hence, for time exchange, the following

Rule. From $1 subtract the bank discount of $1 for the time and rate, where the draft is purchased; to this result add the rate of exchange when at a premium, and subtract it when at a discount, and multiply the result by the face of the draft.

WRITTEN EXERCISES.

3. Manson & Co., of Harrisburg, owe a party in New York $4750; what must they pay at a Harrisburg bank for a draft on New York, exchange 3% discount? Ans. $4714.375.

4. What will a draft of $3500 cost, payable 30 days after sight, at 6%, exchange 1% premium? Ans. $3535. *5. A New York firm received a shipment of flour from Milwaukee, amounting to $7500, and remitted the money by a 15 day draft, at 7%, exchange being at a discount of 1%; what did they pay for the draft? Ans. $7361.25.

SUPPLEMENTARY PROBLEMS.

To be omitted unless otherwise directed.

6. A Detroit merchant bought an assortment of spring goods in New York at a cost of $1500; what will be the cost of a 2 mo. draft on New York, at 14% premium, which will discharge the debt? Ans. $1503.75.

7. A Philadelphia firm send their check for $4500 to their agent in Des Moines, where drafts on Philadelphia are selling at 11% premium; what will the Des Moines bankers pay for it?

Ans. $4556.25.

CASE II.

525. Given, the cost of a bill of exchange, to find its face.

1. A Boston merchant paid $2030 for a draft on Pittsburgh at 30 days, exchange 2% premium; required the face of the draft.

Rule.-Find the cost of a draft of $1, and divide the given cost by it; the quotient will be the face of the draft.

WRITTEN EXERCISES.

2. Jones & Bro., of St. Paul, purchased a sight draft for $2587 on Cincinnati, at a discount of %; required the face of the draft. Ans. $2600.

3. A merchant in Maine buys a draft on New York at 45 days for $602.25 at a premium of 1%; what is the face of the draft? Ans. $600.

4. I received from Philadelphia a check for $40.20, which cost % to have cashed; what should have been the face of the check that I might have realized $40.20? Ans. $40.50.

5. My agent sold $5000 worth of goods on commission, at 24%, and remits the proceeds in a draft bought at 14% premium; what did I receive for the sale? Ans. $4814.81.

SUPPLEMENTARY PROBLEMS.

To be omitted unless otherwise directed.

6. A Baltimore merchant wishes to pay a debt of $1500 in Detroit by a sight draft on the First National Bank, Baltimore; if exchange on Baltimore is % premium at Detroit, what must be the face of the draft?

NOTE. Since the draft is at a premium of per cent. in Detroit, it must be draw a for such a sum as, with the preinium, will amount to $1500; hence the face will equal $1500÷1.00 or $1498.13—

*7. If the Baltimore merchant in the previous problem buy, instead of a sight draft, a 90 day draft, what will it cost? Ans. $1474.91.