finance

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.

Before taking up the question of the activities of the foreign exchange department and the question of how bankers make money dealing in exchange, it may be well to fix in mind clearly what the various forms of foreign exchange are. Following is a description of the most important classes of bills bought and sold in the New York market:

1. Commercial Long Bills

The foreign exchange market is in every sense "open"—‌anyone with bills to buy or sell and whose credit is all right can enter it and do business on a par with anyone else. There is no place where the trading is done, no membership, license or anything of the kind.

Complete description of the various forms of activity of the foreign exchange department of an important firm would fill a large volume, but there are certain stock operations in foreign exchange which are the basis of most of the transactions carried out and the understanding of which ought to go a long way toward making clear what the nature of the foreign exchange department's business really is.

1. Selling "Demand" Against "Demand"

Gold exports and imports, while not constituting any great part of the activity of the average foreign department, are nevertheless a factor of vital importance in determining the movement of exchange. The loss of gold, in quantity, by some market may bring about money conditions resulting in very violent movements of exchange; or, on the other hand, such movements may be caused by the efforts of the controlling financial interests in some market to attract gold.

On account of the huge fixed investment of foreign money in the United States, on account of Europe's continuous speculative interest in our markets, and the activity of the "arbitrageurs" in both bonds and shares, dealings in securities between ourselves and the Old World are always on a very great scale. Not infrequently, indeed, Europe's position on American securities is an influence of dominating importance.

Interesting as the movement of gold and the international money markets may be, it is in its application to the every-day importing and exporting of merchandise that foreign exchange has its greatest interest for the greatest number of people. Every bale of cotton exported from the country, every pound of coffee brought in, is the basis of an operation in foreign exchange, such operations involving usually the issue of what is known as "commercial credits."

Apart from the political measures which may be found necessary for the regulation, after the war, of International Finance, it remains to consider what can be done to amend the evils from which it suffers, and likewise what, if anything, can be done to strengthen our financial weapon, and sharpen its edge to help us in the difficult fight that will follow the present war, however it may end.

by Hartley Withers

1916

Finance, in the sense in which it will be used in this book, means the machinery of money dealing. That is, the machinery by which money which you and I save is put together and lent out to people who want to borrow it. Finance becomes international when our money is lent to borrowers in other countries, or when people in England, who want to start an enterprise, get some or all of the money that they need, in order to do so, from lenders oversea.