s of a new
ninety-day draft.

The original draft for L50,000 comes due let us say on October 19, so
that about October 10th the New York banker will be under the necessity
of sending over to London a demand draft for L50,000. The rate
realizable for ninety-day drafts being always considerably lower than
the price of demand drafts, it follows that if the banker proposes to
buy L50,000 of demand out of the proceeds of a fresh ninety-day bill he
will have to draw his fresh bill for more than L50,000. If the demand
rate happened to be 4.86, the L50,000 he needs would cost him $243,000.
In order to raise $243,000 by selling a ninety-days' sight draft (say
at 4.83) he would have to make the new draft for L50,310. The extra
L310 would constitute the interest. Each time he renewed the draft he
would have to draw for more and more.

Requiring the tying up of no actual capital, this form of financing
"floating investments" has become exceedingly popular and is carried on
on a large scale. Where the relationships between the foreign and the
American houses are close, there is almost no limit to the number of
times an original bill may be renewed. As for the constantly increasing
amount of the drafts which have to be drawn, that is taken care of by
the interest on the investment carried.

Not all the floating investment in American securities is carried in
this way, but in whatever form the financing is done it is bound to
involve foreign exchange operations and to necessitate the drawing of
drafts by banking houses in this country on their correspondents
abroad. Quiet conditions may result in long periods when investments of
this kind are left undisturbed, but even then, the constant remitting
and renewing of drafts originates a good deal of exchange market
activity. And with considerable frequency occur periods when the
floating investment is strongly affected by immediate conditions, and
when purchases, sales, and transfers of securities stir the exchange
market to a high pitch of excitement.

Speculative operations in this market for foreign account, are,
however, the cause of the greatest amount of exchange market activity
caused by international security transactions. There are times, as has
been said, when individuals and banking houses abroad speculate heavily
and continuously in this market, at which times the exchange market is
strongly affected by the buying and selling of exchange which
necessarily takes place. Suc