the "direct" movement.
"Indirect" movements, however, have figured so prominently of recent
years in the exchange market that at least one example ought perhaps to
be given. Far and away the most important of such "indirect movements"
are those in which gold is shipped from New York to Paris for the sake
of creating a credit balance in London.

Before examining the actual figures of such an operation it may be well
to glance at the theory of the thing. A New York banker, say, for any
one of many different reasons, wants to create a credit balance in
London. Examining exchange conditions, he finds that sterling drafts
drawn on London are to be had relatively cheaper _in Paris_ than in New
York. In the natural course of exchange arbitrage the New York banker
would therefore buy a draft on Paris and send it to his French
correspondent with instruction to use it to buy a draft on London and
to remit such draft to London for credit of his (the American banker's)
account.

But exchange on Paris is not always plentiful in the New York market,
and very likely the New York banker will find that if he wants to send
anything to Paris he will have to send gold. Assume, then, that he
finds conditions favorable and decides to thus transfer a couple of
hundred thousand pounds to London by sending gold to Paris. The
operation might work out as follows:

Cost of 48,500 ounces of bar gold (.995 fine) at
U.S. Sub-Treasury, New York, at $20.5684 per ounce $997,567

Insurance (4-1/2 cents per $100) 450

Freight (5/32 per cent.) 1,555

Assay office charges (4 cents per $100) 400

Cartage and packing 60

Commission in Paris 250

Interest from time gold is shipped from New York until
draft on new credit in London can be safely drawn and
sold, 6 daysat 2 per cent. 333
-----------
$1,000,615

The gold arrives in Paris and is bought by the Bank of
France--

48,500 ounces at fcs. 106.3705 per ounce, equals
fcs. 5,158,969

That amount of francs then invested in a check on
London, and the check sent to London for credit of the
Americ