Foreign exchange;

              38 HASKINS & SELLS July
BANKERS' long bills, bankers' short
bills, cable transfers, commercial clean
(long and short), commercial documentary
(long and short), documents on acceptance
and on payment, etc., are terms to terrify
the uninitiated. Analyzed, they seem ridicu­lously
simple.
Bills of exchange are issued either by
banks or by merchants. Hence, the terms,
bankers' bills and commercial bills. If they
run over thirty days they are called long
bills; thirty days or under, short bills. If
they have no bills of lading attached, they
are clean; with the bills of lading, documen­tary.
In some cases the documents are
surrendered upon acceptance of the draft;
in others only upon payment. These varia­tions
in the form of exchange have little
bearing on the accounting for foreign
exchange.
The foreign exchange banker in New
York who acts as the intermediary between
the merchants of this and other countries,
buys exchange and sells exchange. The
exchange which he buys is that which con­sists
of drafts drawn by merchants in this
country against merchants in some foreign
country. The price which he pays is deter­mined
by the economic law, namely, the
demand for and supply of drafts on foreign
countries. The exchange which he sells is
his draft against the credit established
abroad by the drafts purchased or some­times
his credit with the foreign banks
where he has connections.
When large quantities of American goods
have been sold abroad the supply of ex­change
(drafts) on London, for example,
increases. If there is more exchange of­fered
than the banks and exchange brokers
will take promptly the price sags. The
more the offerings by exporters and the less
the takings by the banks, the lower falls
the price.
On the other hand, importers who have
purchased goods abroad have need for
drafts (on London, for example) with
which to settle accounts. The relation of
their demand to the supply of the banks
fixes the price. As the demand gets out of
proportion to the supply the price rises. It
may, in consequence, go so high that it
would be cheaper to obtain the gold, stand
the expense of insuring and shipping it and
take the loss caused by the wear and tear
on the gold (abrasion). Any extensive
shipping of gold will tend to decrease the
demand for exchange so that the price of
exchange will fall. The prices constituting
the extremes of this range are known as
the "gold points."
The books of the importer or the exporter
Foreign Exchange