694. A Documentary Bill of Exchange is a bill drawn by a shipper upon his consignee against merchandise shipped, accompanied by a bill of lading indorsed to order of the payee, and an insurance certificate covering the merchandise against which the bill is drawn.

695. A Letter of Credit is a letter issued by a banking house to a person who expects to travel abroad, and addressed to its foreign correspondents requesting them to furnish the traveler with money in sums to suit his convenience until the total amount specified in the letter has been obtained.

The advantages of a letter of credit are that it is payable at several places, at different times, and in variable sums. A bill of exchange is payable only at one time and in one payment.

696. A Cable Transfer is a remittance of money to a foreign country by telegraph (cablegram).

Cable transfers are made through bankers. The amount of business done in this way is constantly increasing.

697. The Rate of Exchange is the market value in one country of bills of exchange drawn on another.

1. The commercial par of exchange is about the same as the intrinsic value of the coin represented by its face plus the express charges and insurance of shipping coin or bullion from one country to another. When it is greater than this, gold can be exported at a profit; and when less than its intrinsic value and cost of shipment and insurance, gold can be imported at a profit.

2. When quotations of Foreign Exchange are given, exchange on England is quoted by giving the value of £1 in dollars and cents; exchange on France, Belgium, and Switzerland, by giving the value of $1 in francs and centimes (hundredths of a franc); exchange on Germany by giving the value of 4 marks (reichsmarks) in cents; exchange on Amsterdam by giving the value of 1 guilder (gülden) or florin in cents.

3. When bills of exchange are bought and sold through brokers, the brokerage is computed on the market value and added to the market value to find the total cost to the purchaser, or deducted from the market value to find the net proceeds due the seller.

698. 1. What will be the cost of a bill of exchange on Liverpool for £250 8 s. 6 d., when exchange is $4.864 ?

Solution.-£250 8 s. 6 d. £250.425. Since £1 costs $4.86%, £250.425 will cost 250.425 times $4 864, or $1218.94.

2. A bill of exchange on London cost $2565.30. What was the face of the bill, exchange being $4.87?

Solution.-$2565.30

$4.87 = 526.7556, or £526.7556. £526.7556 = £526

15 s. 1 d, the face of the bill.

EXAMPLES.

3. What will be the cost of a bill of exchange on London for £150, exchange at $4.864?

4. What will be the cost of a sight exchange on London for £445 15 s. when exchange is quoted at $4.864?

5. A merchant in New York bought a bill of exchange on London for which he paid $3600. What was the face of the bill, exchange at $4.85?

6. Find the cost of a bill of exchange on Liverpool for £185 12 s. 6 d., when the quotation is $4.86.

7. I purchased through a broker a bill of exchange on London of £540 at 4.85ğ. The brokerage was %. What was the total cost?

8. What will be the cost of a bill of exchange on Paris for 3000 francs, when exchange is at 5.20?

Suggestion.-See p. 292, note 2.

9. Find the cost of a bill of exchange on Paris for 500 francs, bought at 5.191.

10. What will be the cost of a bill of exchange on Hamburg for 1200 marks when exchange is at 944?

11. What will be the cost of a bill of exchange on Berlin for 10000 marks when exchange is quoted at 95?

12. I sold a bill of exchange on Berlin for 12000 marks, through a broker who charged me %. What were the net proceeds due me?

13. Find the cost of a bill of exchange on Amsterdam for 6000 guilders, at 40§.

14. What will be the cost of a draft on Bremen at 60 days' sight of 4560 marks when exchange is at 944?

Suggestion.-The exchange 94 is the quotation for 60 days. Quotations of Foreign Exchange are usually given for sight bills, and also for bills at 60 days. See Art. 693, note 2

15. A Philadelphia merchant bought a bill of exchange on Amsterdam at 60 days' sight for 16784 guilders, at 393. How much did he pay for the bill?

16. The cost of a bill of exchange on Lyons, bought at 5.20, was $1263.75 which included a brokerage of 4%. What was the face of the bill?

17. A merchant of London bought 25000 bushels of Minnesota wheat at 70 cents a bushel, and remitted a draft in settlement What did he pay for the draft, exchange being 4.86§?

18. When Penn. R. R. stock is quoted at 128, what should be the equivalent London quotation of the stock, exchange being 4.86?

128% of $5 $6.40

$6.40 $4.86

1.3168+,

or 1313% or 1314.

are quoted in London on a fixed basis of $5 to the £. Hence, to find the equivalent London quotation, multiply the American

quotation by 5 and divide the product by the rate of exchange. (See explanation to problem 73, page 281.)

19. Find the equivalent London quotation of C. R. I. & Pac. R. R. stock quoted in New York at 108, exchange at 4.864.

20. Am. Tin Plate pf. stock was quoted in New York at 741. What was the equivalent quotation in London if the exchange was 4.85?

21. When Del. & Hud. R. R. stock is quoted in London at 112, what is the equivalent New York quotation, exchange at 4.86?

Suggestion. Multiply the London quotation by the rate of exchange and divide the product by 5.

22. When Louis. & Nash. R. R. stock is quoted in London at 76, what is the equivalent New York quotation, if the rate of exchange is 4.863?

23. When Chic. & Nor. R. R. stock is quoted in New York at 197, what is the equivalent London quotation, the course of exchange being 4.85g?

24. When Union Pac. pf. stock is quoted in London at 80, what is the equivalent New York quotation, exchange being quoted at 4.863?

25. An English manufacturer drew a bill of exchange for £360 15 s. 6 d. on a Chambersburg, Pa., merchant. The draft was presented to the drawee by a local bank, and paid by check. Find the face of the check, exchange being 4.85, and collection %.

26. A New York Jeweler bought a bill of exchange on Geneva for which he paid $5785. What was the face of the bill, the course of exchange being 5.16!?

BANKS AND BANKING.

699. A Bank is an incorporated institution which deals in money and commercial paper.

700. The business of a bank consists chiefly in receiving deposits of money for the safe keeping and convenience of customers, lending money, discounting commercial paper, issuing notes for circulation, and in facilitating the sending of money from one place to another by means of checks, drafts, or bills of exchange.

Banks receive deposits without charge for safe keeping, and usually pay no interest on them. Loans, however, are made from deposits at a lawful rate and in sums sufficient to fully pay for keeping the accounts of depositors.

701. Banks are of two principal classes, National banks and State banks.

There are also banks conducted by private individuals just as any other business. These are called Private banks.

NATIONAL BANKS.

702. A National Bank is one which is organized under the National Banking Act of Congress.

The National Banking Act provides for the organization of banking associations to be formed of any number of persons not less than five.

No banking association can be organized with a capital of less than $100000 except in towns whose population does not exceed 6000, where, with the approval of the Secretary of the Treasury, they may be formed with a capital of $50000, and in towns of less than 3000 inhabitants with a capital of $25000.

In cities of over 50,000 inhabitants, the capital must not be less than $200000. This is to be divided into shares of stock of $100 each.

The stockholders of national banks are individually liable equally and ratably, and not for one another, for the debts of the bank to an amount equal to their stock in the bank at the par value thereof, 'n addition to the amount invested in such shares.

National banks are not allowed to lend money on real estate security; and real estate purchased or mortgaged to secure a previous debt must be disposed of within five years.

All national banks are subject to periodical visitation and examination by the National Bank Examiner who can, upon the detection of any dishonesty or failure to comply with the law, order a bank closed for full investigation.

703. National Bank Notes. A national bank may issue notes for circulation by depositing as security with the United States Treasurer registered bonds. These bonds are held as security for the circulating notes, which in case the bank should fail, the Government will redeem. A bank is allowed to issue circulating notes to the amount of the par value of the bonds deposited, but in no case can a bank have a circulation greater than its capital stock actually paid in.

1. A national bank is required to keep on deposit in the treasury of the United States, a sum equal to 5% of its circulation for the purpose of redeeming its notes.

2. No national bank may complete its organization or commence the banking business until it shall have deposited with the Treasurer of the U. S. interest bearing U. S. bonds to an amount not less than one-fourth of the capital.

704. Reserve Fund. The national banks in the cities of Boston, Albany, New York, Philadelphia, Baltimore, Washington, Pittsburg, Cleveland, Detroit, Chicago, Milwaukee, Louisville, St. Louis, New Orleans, and San Francisco, are required to keep a reserve fund equal to 25% of their deposits; and all other national banks are required to keep 15% as a Reserve Fund. Any excess above the requirements is called the Surplus Reserve.

705. Surplus Fund. National banks are also required by law to set aside, before the usual semi-annual dividends are declared, of their net earnings for the preceding half year as a Surplus Fund until this fund amounts to 20% of the capital.

706. Annual Tax. National banks pay, under section 13 of the Act of Congress approved March 14, 1900, a semi-annual tax of of 1% to the Government on the average amount of their circulating notes.

707. Advantages. While a tax is paid upon the circulation, a national bank possesses the following advantages: It is exempt