FOREIGN EXCHANGE.

347. Foreign Exchange relates to remittances made between different countries.

The drafts or bills of exchange are expressed in the money of the country in which they are made payable.

Exchanges with Europe are effected chiefly through prominent financial centers, as London, Paris, Amsterdam, Antwerp, Berlin, Frankfort, Hamburg, Bremen, etc.

Sterling Exchange consists of bills on any part of Great Britain.

348. Quotations are the published rates at which bills of exchange, stocks, bonds, etc., are bought and sold in the money market.

The rate of exchange varies with the amount of business and the direction of money remittances. In computing exchange, it is the custom in some cases to state the value of the United States monetary unit in units and fractions of a unit of foreign currency, and in other cases to express the value of the foreign monetary unit in dollars and fractions of a dollar United States money.

Thus, quotations of exchange on London give the value of £1 sterling in dollars and cents; on Paris, Antwerp, and Geneva, the value of $1 in francs; on Amsterdam, the value of 1 guilder or florin in cents; on Hamburg, Frankfort, and Berlin, the value of 4 mark in cents.

349. A Set of Exchange is a bill drawn in triplicate, named FIRST, SECOND, and THIRD of exchange, each copy being valid until the amount of the bill is paid. These copies are sent by different mails, to provide against miscarriage. When one is paid, the others are void.

EXAMPLES.

350. To find the cost of a foreign bill of exchange.

1. Find the cost in New York, of the following bill on London, at 3 da. sight, exchange quoted at $4.87.

£500.

NEW YORK, April 1, 1896.

At sight of this First of Exchange (Second and Third unpaid), pay to the order of John Walker & Co., Five Hundred Pounds sterling, value received, and charge the same to the account of BROWN BROTHERS & Co.

TO BROWN, SHIPLEY & Co., }

London, England.

OPERATION.

$4.875 × 500 = $2437.50, cost of the bill, Ans.

SOLUTION.

- Since £1 costs $4.875, £500 will cost 500 times $4.875 $2437.50, Ans.

=

2. Find the cost of a bill on Paris, for 495 francs, at 5.15.

SOLUTION. Since 5.15 francs cost $1, 495 francs will cost as many dollars as 5.15 francs are contained times in 495 francs, or $96.12. 3. Find the cost of a bill of exchange on Berlin, for 1750 marks, quoted at 961.

OPERATION.

$.96254 × 1750 = $421.09, cost of the bill.

SOLUTION. Since $.9625 is the value of 4 mark, the value of 1 mark is of $.9625, and the value of 1750 mark is 1750 times the quotient, which is $421.09, Ans.

RULE. Multiply the face of the bill of exchange by the value of the foreign monetary unit in United States money. Or,

Divide the face of the bill of exchange by the value of $1 in the foreign monetary unit expressed decimally.

4. Find the cost of a bill on Liverpool, for £ 600 15s., at $4.861.

5. Find the cost of a bill on Geneva, Switzerland, for 5460 francs, at 5.211.

6. Find the cost of a bill on Hamburg, for 2560 mark, at 95g.

PRAC. AR. - 20

351. To find the face of a bill of exchange.

1. What will be the face of a bill on London, that can be bought for $5488.26, exchange selling at $4.85?

OPERATION.

$5488.26 $4.85 = 1131.6, or £ 1131.6 = £ 1131 12s. SOLUTION. Since £1 $4.85, $5488.26 will equal as many pounds as $4.85 is contained times in $5488.26, which is 1131.6 times, or £1113.6 £1131 12s.

2. What will be the face of a bill on Paris, bought for $325, exchange at 5.17?

OPERATION.

5.17 francs × 325

= 1680.25 francs.

=

SOLUTION. Since $1 = 5.17 francs, $325 1680.25 francs, Ans.

= 325 × 5.17 francs, =

3. What will be the face of a bill on Hamburg, bought for $4000, exchange quoted at 96?

RULE. Divide the cost of exchange by the value of the foreign monetary unit in United States money. Or,

Multiply the cost of exchange by the value of $1 in the foreign monetary unit expressed decimally.

4. Find the face of a bill on Manchester, England, bought for $7500, exchange at 4.86.

5. Find the face of a bill on Frankfort, bought for $395.75, exchange at 951.

6. Find the face of a bill on Geneva, Switzerland, bought for $4856, exchange at 5.224.

7. Find the face of a bill on Amsterdam, bought for $3750.67, exchange at 423.

8. Find the face of a bill on Berlin, bought for $4000, exchange being 933.

PAYMENTS AND ACCOUNTS.

352. Equation of Payments is the process of finding the mean or equitable time of payment of several sums, due at different times without interest.

353. The Term of Credit is the time to elapse before a debt becomes due.

354. The Average Term of Credit is the time to elapse before several debts, due at different times, may all be paid at once, without loss to debtor or creditor.

355. The Equated Time is the date at which the several debts may be canceled by one payment.

356. An Account is a statement or record of mercantile transactions in business form.

357. The Items of an account may be sums due at the date of the transaction, or on credit for a specified time.

An account may have both a debit and a credit side, the former marked Dr., the latter Cr. Suppose A and B have dealings in which there is an interchange of money or property; A keeps the account, heading it with B's name; the Dr. side of the account shows what B has received from A, the Cr. side shows what he has parted with to A.

358. The Balance of account is the difference of the two sides, and may be in favor of either party.

1. If, in the transactions, one party has received nothing from the other, the balance is simply the whole amount, and the account has but one side. Bills of purchase are of this class.

2. Book accounts bear interest after the expiration of the term of credit, and notes after they become due.

359. To Average an Account is to find the mean or equitable time of payment of the balance.

360. A Focal Date is a date to which all the others are compared in averaging an account.

EXAMPLES.

361. To find the equated time when all the terms of credit begin at the same date.

1. On the first day of January I find that I owe Mr. Smith 8 dollars, to be paid in 5 months, 10 dollars to be paid in 2 months, and 12 dollars to be paid in 10 months. At what time may I pay the whole amount?

OPERATION.

$8 x 5=$ 40

10 × 2 = 20

12 x 10 120

$30

=

$180÷$30=6 mo., average time of credit. Jan. 16 mo. July 1, equated time of payment.

=

SOLUTION. The whole amount to be paid, as seen above, is $30; and we are to find how long it shall be withheld, or what term of credit it shall have, as an equivalent for the various terms of credit on the different items. Now the value of credit on any sum is measured by the product of the money and time. The credit on $8 for 5 mo. = the credit on $40 for 1 mo. In the same manner, we have the credit on $10 for 2 mo. = the credit on $20 for 1 mo.; and the credit on $12 for 10 mo. = the credit on $120 for 1 mo. The value of the several terms of credit equals a credit of 1 month on $180; and this equals a credit of 6 months on $30, since

30 × 6 = 180 x 1.

RULE.-I. Multiply each payment by its term of credit, and divide the sum of the products by the sum of the payments; the quotient will be the average term of credit.

II. Add the average term of credit to the date at which all the credits begin, and the result will be the equated time of payment.

1. The periods of time used as multipliers must all be of the same denomination, and the quotient will be of the same denomination as the terms of credit; if these are months, and there is a remainder after the division, continue the division to days by reduction, always taking the nearest unit in the last result.

2. The several rules in equation of payments are based upon the principle of bank discount; for they imply that the discount of a sum paid before it is due equals the interest of the same amount paid after it is due.