day bills, while the total frequently runs up to three or four times
that amount. The sum of these floating loans is, indeed, changing all
the time, a circumstance which in itself is responsible for a demand
for very great amounts of foreign exchange.

Take, for instance, the amount of French and English capital employed
in this market in the form of short-term loans; $250,000,000 is
probably a fair estimate of the average amount, and 90 days a fair
estimate of the average time the loans run before being paid off or
renewed. That means that the quarter of a billion dollars of floating
indebtedness is "turned over" four times a year and _that_ means that
every year the rearrangement of these loans gives rise to a demand for
a billion dollars' worth of foreign exchange. These loaning operations,
it must be understood, both originate exchange and create a demand for
it. They are mentioned, therefore, in the preceding chapter, as one of
the sources from which exchange originates, and now as one of the
sources from which, during the course of every year, springs a demand
for a very great quantity of exchange.

The six sources of demand for exchange, then, are for the payment for
imports; for securities purchased abroad; for the remitting abroad of
interest on foreign capital invested here and the money which
foreigners in this country send home; for remitting freight and
insurance profits earned by foreign companies here; for tourists'
expenses abroad; and lastly, for the paying off of foreign loans. From
these sources spring practically all the demand for exchange. In the
last chapter there were set forth the principal sources of supply. With
a clear understanding of where exchange comes from and of where it
goes, it ought now to be possible for the student of the subject to
grasp the causes which bear on the movement of exchange rates. That
subject will accordingly be taken up in the next chapter.

CHAPTER III

THE RISE AND FALL OF EXCHANGE RATES

Granted that the obligations to each other of any two given countries
foot up to the same amount, it is evident that the rate of exchange
will remain exactly at the gold par--that in New York, for instance,
the price of the sovereign will be simply the mint value of the gold
contained in the sovereign. But between no two countries does such a
condition exist--take any two, and the amount of the obligation of one
to the other changes every day, which causes a continu