uple of months on the
average and then being sometimes paid off, but more often shifted about
or renewed, give rise to the drawing of immense amounts of foreign
exchange.

4. Drawing of so-called "finance-bills," of which a complete
description will be found in chapters IV and VI, is the fourth source
whence foreign exchange originates. Whenever money rates become
decidedly higher in one of the great markets than in the others,
bankers at that point who have the requisite facilities and credit,
arrange with bankers in other markets to allow them (the bankers at the
point where money is high) to draw 60 or 90 days' sight bills. These
bills can then be disposed of in the exchange market, dollars being
realized on them, which can then be loaned out during the whole life of
the bills. The advantages or dangers of such an operation will not be
touched upon here, the purpose of this chapter being merely to set
forth clearly the sources from which foreign exchange originates.

And when money is decidedly higher in New York than in London an
immense volume of foreign exchange does originate from this source. A
number of firms and banks, with either their own branches in London or
with correspondents there to whom they stand very close, are in a
position where they can draw very large amounts of finance bills
whenever they deem it profitable and expedient to do so. Eventually, of
course, these 60 and 90 day bills come due and have to be settled by
remittances of demand exchange, but in the meantime the house which
drew them will have had the unrestricted use of the money. In a market
like New York this is only too often a prime consideration. With money
rates soaring as they do so frequently here, a banker can pay almost
any commission his correspondent abroad demands and still come out
ahead on the transaction.

These are the principal sources from which foreign exchange
originates--shipments of merchandise, sales abroad of securities,
transfer of foreign banking capital to this side, sale of
finance-bills. Other causes of less importance--interest and profits on
American capital invested in Europe, for instance--are responsible for
the existence of some quantity of exchange, but the great bulk of it
originates from one of the four sources above set forth. In the next
chapter effort will be made to show whence arises the demand which
pretty effectually absorbs all the supply of exchange produced each
year.

CHAPTER