money, and I am out of the transaction.

Obligations continually arising in the course of trade and finance
between firms in New York and firms in London, it follows that every
day in New York there will be merchants with sterling drafts on London
which they are anxious to sell for dollars, and vice versa. The supply
of exchange, therefore, varies with the obligations of one country to
another. If merchants in New York, for instance, have sold goods in
quantity in London, a great many drafts on London will be drawn and
offered for sale in the New York exchange market. The supply, it will
of course be apparent, varies. Sometimes there are many drafts for
sale; sometimes very few. When there are a great many drafts offering,
their makers will naturally have to accept a lower rate of exchange
than when the supply is light.

The par of exchange between any two countries is the price of the gold
unit of one expressed in the money of the other. Take England and the
United States. The gold unit of England is the pound sterling. What is
the price of as much gold as there is in a new pound sterling,
expressed in American money? $4.8665. That amount of dollars and cents
at any United States assay office will buy exactly as much gold as
there is contained in a new British pound sterling, or sovereign, as
the actual coin itself is called. 4.8665 is the mint par of exchange
between Great Britain and the United States.

The fact that the gold in a new British sovereign (or pound sterling)
is worth $4.8665 in our money by no means proves, however, that drafts
payable in pounds in London can always be bought or sold for $4.8665
per pound. To reduce the case to a unit basis, suppose that you owed
one pound in London, and that, finding it difficult to buy a draft to
send in payment, you elected to send actual gold. The amount of gold
necessary to settle your debt would cost $4.8665, in addition to which
you would have to pay all the expenses of remitting. It would be
cheaper, therefore, to pay considerably more than $4.8665 for a
one-pound draft, and you would probably bid up until somebody consented
to sell you the draft you wanted.

Which goes to show that the mint par is not what governs the price at
which drafts in pounds sterling can be bought, but that demand and
supply are the controlling factors. There are exporters who have been
shipping merchandise and selling foreign exchange against the shipments
all their lives who have