or as a result of gifts by outsiders to them being
credited on such accounts, while the checks they draw or the drafts
they purchase in payment for merchandise, real estate or other
property purchased of outsiders, or of gifts made to them are debited.
When in a given period, say a day or a week, the receipts of the
customers of a bank from outsiders, as a result of current or past
sales and gifts, exceed the payments made by them as a result of
purchases and gifts, its credit balances with its correspondents will
increase, and under opposite conditions they will decrease. If the
payments should continue in excess for a considerable period, the
credit balances of a bank with its correspondents would be exhausted
and some means of replenishing them would have to be found, and under
the opposite conditions too large a portion of the bank's resources
would accumulate with its correspondents and some means of withdrawing
funds would have to be found.

When a bank needs to replenish its credit balances with its
correspondents, it may ship cash or purchase drafts from other home
banks, which it can send to its correspondents for collection like
checks deposited in the ordinary course of business. The latter
resource will of course be available only when these other banks'
balances with their correspondents are not exhausted. Should the
balances of all the banks of a town with their out-of-town
correspondents be nearly or quite exhausted, shipments of cash to
correspondents could not be avoided. If a bank wishes to withdraw
funds from its correspondents for home use, it may order cash shipped
or it may, perhaps, be able to sell drafts for cash to other home
banks.

The expenses involved in shipments of cash, loans, or purchases or
sales of drafts for the purpose of replenishing balances with or
withdrawing them from out-of-town correspondents, give rise to what is
called the _rate of exchange_. If, in order to make out-of-town
payments for its customers, a bank is obliged to pay the expense of
shipping cash to its correspondents or to pay a premium on drafts
purchased from other banks, the natural method of reimbursement will
be a premium charge on drafts sold equal to the amount of the expense
incurred. If it wishes to withdraw a balance with its correspondent,
since to order cash shipped will involve expense, it will be glad to
sell drafts for cash at a discount not to exceed such expense.

The rate of exchange, or the p