o make the biggest and
best banking houses in the country go eagerly after the business.
5. _The Drawing of Finance-Bills_
Approaching the subject of finance-bills, the author is well aware that
concerning this phase of the foreign exchange business there is wide
difference of opinion. Finance bills make money, but they make trouble,
too. Their existence is one of the chief points of contact between the
foreign exchange and the other markets, and one of the principal
reasons why a knowledge of foreign exchange is necessary to any
well-rounded understanding of banking conditions.
Strictly speaking, a finance-bill is a long draft drawn by a banker of
one country on a banker in another, sometimes secured by collateral,
but more often not, and issued by the drawing banker for the purpose of
raising money. Such bills are not always distinguishable from the bills
a banker in New York may draw on a banker in London in the operation of
lending money for him, but in nature they are essentially different.
The drawing of finance-bills was recently described by the foreign
exchange manager of one of the biggest houses in New York, during the
course of a public address, as a "scheme to raise the wind." Whether or
not any collateral is put up, the whole purpose of the drawing of
finance-bills is to provide an easy way of raising money without the
banker here having to go to some other bank to do it.
The origin of the ordinary finance-bill is about as follows: A bank
here in New York carries a good balance in London and works a
substantial foreign exchange business in connection with the London
bank where this balance is carried. A time comes when the New York
banking house could advantageously use more money. Arrangements are
therefore made with the London bank whereby the London bank agrees to
"accept" a certain amount of the American banker's long bills, for a
commission. In the course of his regular business, then, the American
banker simply draws that many more pounds sterling in long bills, sells
them, and for the time being has the use of the money. In the great
majority of cases no extra collateral is put up, nor is the London bank
especially secured in any way. The American banker's credit is good
enough to make the English banker willing, for a commission, to
"accept" his drafts and obligate himself that the drafts will be paid
at maturity. Naturally, a house has to be in good standing and enjoy
high credit not onl
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