ld but includes also all the exchange which other bankers, in their
anticipation of lower rates, hasten to draw. The exchange market is,
indeed, a sensitive barometer, from which those who understand it can
read all sorts of coming developments. It often happens that buying or
selling movements in our securities by the foreigners are so clearly
forecasted by the action of the exchange market that bankers here are
able to gain great advantage from what they are able to foresee.

3. The third great source of supply is in the drafts which bankers in
one country draw upon bankers in another in the operation of making
international loans. The mechanism of such transactions will be treated
in greater detail later on, but without any knowledge of the subject
whatever, it is plain that the transfer of banking capital, say from
England to the United States, can best be effected by having the
American house draw upon the English bank which wants to lend the
money. In the finely adjusted state of the foreign exchanges nowadays,
loans are continually being made by bankers in one country to bankers
and merchants in another. Very little of the capital so transferred
goes in the form of gold. A London house decides to loan, say, $100,000
in the American market. The terms having been arranged, the London
house cables its New York correspondent to draw for L20,000, at 60 or
90 days' sight, as the case may be. The New York house, having drawn
the draft, sells it in the exchange market, realizing on it the
$100,000, which it then proceeds to loan out according to instructions.

The arranging of these loans, it will be seen, means the continuous
creation of very large amounts of foreign exchange. As the financial
relationships between our bankers and those of the Old World have been
developed, it has come about that European money is being put out in
this market in increasing volume. Conditions of money, discount, and
exchange are constantly being watched for the opportunity to make loans
on favorable terms, and the aggregate of foreign money loaned out here
at times reaches very large figures. In 1901 Europe had big amounts of
money outstanding in the New York market, and again in 1906 very large
sums of English and French capital were temporarily placed at our
disposal. But in the summer of 1909 all records were surpassed,
American borrowings in London and Paris footing up to at least half a
billion dollars. Such loans, running only a co