and comprehensible to the man without technical
knowledge. Foreign exchange is no easy subject to understand; there are
few important subjects which are. But, on the other hand, neither is it
the complicated and abstruse subject which so many people seem to
consider it--an idea only too often born of a look into some of the
textbooks on exchange, with their formidable pages of tabulations,
formulas, and calculations of all descriptions. For the average man
there is little of interest in these intricacies of the subject. Many
of the shrewdest and most successful exchange bankers in New York City,
indeed, know less about them than do some of their clerks. What is
needed is rather a clear and definite knowledge of the movement of
exchange--why it moves as it does, what can be read from its movements,
what effects its movements exert on the other markets. It is in the
hope that something may be added to the general understanding of these
important matters that this little book is offered to the public.

THE ELEMENTS OF FOREIGN EXCHANGE

CHAPTER I

WHAT FOREIGN EXCHANGE IS AND WHAT BRINGS IT INTO EXISTENCE

Underlying the whole business of foreign exchange is the way in which
obligations between creditors in one country and debtors in another
have come to be settled--by having the creditor draw a draft directly
upon the debtor or upon some bank designated by him. A merchant in New
York has sold a bill of goods to a merchant in London, having thus
become his creditor, say, for $5,000. To get his money, the merchant in
New York will, in the great majority of cases, draw a sterling draft
upon the debtor in London for a little over L1,000. This draft his
banker will readily enough convert for him into dollars. The buying and
selling and discounting of countless such bills of exchange constitute
the very foundation of the foreign exchange business.

Not all international obligations are settled by having the creditor
draw direct on the debtor. Sometimes gold is actually sent in payment.
Sometimes the debtor goes to a banker engaged in selling drafts on the
city where the obligation exists, gets such a draft from him and sends
that. But in the vast majority of cases payment is effected as
stated--by a draft drawn directly on the buyer of the goods. John Smith
in London owes me money. I draw on him for L100, take the draft around
to my bank and sell it at, say, 4.86, getting for it a check for
$486.00. I have my