EXCHANGE.

580. Exchange is a method of remitting money from one place to another, or of making payments by written orders.

581. A Bill of Exchange is a written request or order upon one person to pay a certain sum to another person, or to his order, at a specified time.

582. A Sight Draft or Bill is one requiring payment to be made "at sight," which means, at the time of its presentation to the person ordered to pay In other bills, the time specified is usually a certain number of days "after sight."

There are always three parties to a transaction in exchange, and usually four:

583. The Drawer or Maker is the person who signs the order or bill;

584. The Drawee is the person to whom the order is addressed;

585. The Payee is the person to whom the money is ordered to be paid; and

586. The Buyer or Remitter is the person who purchases the bill. He may be himself the payee, or the bill may be drawn in favor of any other person.

587. The Indorsement of a bill is the writing upon its back, by which the payee relinquishes his title, and transfers the payment to another. The payee may indorse in blank by writing his name only, which makes the bill payable to the bearer, and consequently transferable like a bank note; or he may accompany his signature by a special order to pay to another person, who in his turn may transfer the title in like manner. Indorsers become separately responsible for the amount of the bill, in case the drawee fails to make payment. A bill made payable to the bearer is transferable without indorsement.

588. The Acceptance of a bill is the promise which the drawee makes when the bill is presented to him to pay it at maturity; this obligation is usually acknowledged by writing the word "Accepted," with his signature, across the face of the bill.

NOTES.-1. In this country, and in Great Britain, three days of grace are al lowed for the payment of a bill of exchange, after the time specified has expired. In regard to grace on sight bills, however, custom is variabie; in New York. Pennsylvania, Virginia, and some other States, no grace is allowed on sight bills, 2. When a bill is protested for non-acceptance, the drawer is obligated to pay it immediately, even though the specified time has not expired.

Exchange is of two kinds. Domestic and Foreign.

589. Domestic or 1nland Exchange relates to remittances made between different places of the same country.

NOTE. An Inland Bill of Exchange is commonly called a Draft.

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

591. A Set of Exchange consists of three copies of the same bill, made in foreign exchanges, and sent by different conveyances to provide against miscarriage; when one has been paid, the others are void.

592. The Face of a bill of exchange is the sum ordered to be paid; it is usually expressed in the currency of the place on which the draft is made.

593. The Par of Exchange is the estimated value of the coins of one country as compared with those of another, and is either intrinsic or commercial.

594. The Intrinsic Par of Exchange is the comparative value of the coins of different countries, as determined by their weight and purity.

595. The Commercial Par of Exchange is the comparative value of the coins of different countries, as determined by their nominal or market price.

NOTE. The intrinsic par is always the same while the coins remain unchanged; but the commercial par, being determined by commercial usage, is fluctuating.

596. The Course of Exchange is the current price paid in one place for bills of exchange on another place. This price varies, according to the relative conditions of trade and commercial credit at the two places between which exchange is made. Thus, if Boston is largely indebted to Paris, bills of exchange on Paris will bear a high price in Boston.

When the course of exchange between two places is unfavor

able to drawing or remitting, the disadvantage is sometimes avoided, by means of a circuitous exchange on intermediate places between which the course is favorable.

DIRECT EXCHANGE.

597. Direct Exchange is confined to the two places between which the money is to be remitted.

598. There are always two methods of transmitting money between two places. Thus, if A is to receive money from B, 1st. A may draw on B, and sell the draft;

2d. B may remit a draft, made in favor of A.

NOTE. One person is said to draw on another person, when he is the maker of a draft addressed to that person.

CASE I.

599. To compute domestic exchange.

The course of exchange for inland bills, or drafts, is always expressed by the rate of premium or discount. Drafts on time, however, are subject to bank discount, like notes of hand, for the term of credit given. Hence, their cost is affected by both the course of exchange and the discount for time.

1 What will be the cost of the following draft, exchange on Boston being in Pittsburgh at 24% premium?

$600.

PITTSBURGH, June 12, 1860. Sixty days after sight, pay to William Barnard, or order, six hundred dollars, value received, and charge the same to our

account.

To the Suffolk Bank, Boston.

$1 + $.0225

=

OPERATION.

THOMAS BAUER & Co.

$1.0225, course of exchange.

.0105, bank discount of $1, (63 da.)

$1.012, cost of exchange for $1.

$600 × 1.012 = $607.20, Ans.

ANALYSIS. From $1.0225, the course of exchange, we subtract $.C105, the bank discount of $1 for the specified time, and obtain $1.012, the cost of exchange for $1; then $600 x 1.012: rost of exchange for $600.

$607.20. the

2. A commission merchant in Detroit wishes to remit to his employer in St. Louis, $512.36 by draft at 60 days; what is the face of the draft which he can purchase with this sum, exchange being at 2% discount?

OPERATION.

$1$.025 $.975,

=

course of exchange. .01225, discount of $1.

$.96275, cost of exchange for $1.

$512.36.96275 = $532.18+, Ans.

ANALYSIS. From $.975, the course of exchange, we subtract $.01225, the bank discount of $1 for the specified time, at the legal rate in Detroit, and obtain $.96275, the cost of exchange for $1; and the face of the draft that will cost $512.36, will be as many dollars as $.96275 is contained times in 512.36, which is 532.18+, times. Hence we have the following

RULE. I. To find the cost of a draft, the face being given.— Multiply the face of the draft by the cost of exchange for $1.

II. To find the face of a draft, the cost being given.-Divide the given cost by the cost of exchange for $1.

NOTE.-The cost of exchange for $1 may always be found, by subtracting from the course of exchange the bank discount (at the legal rate where the draft is made), for the specified time. For sight drafts, the course of exchange is the cost of $1.

EXAMPLES FOR FRACTICE.

1. What must be paid in New York for a draft on Boston, at 30 days, for $5400, exchange being ac% premium?

Ans. $5392.35.

2. What is the cost of sight exchange on New Orleans, for $3000, at 31 % discount?

3. What must be paid in. Philadelphia for a draft on St. Paul drawn at 90 days, for $1800, the course of exchange being 101% %? Ans. $4791.60. 1

4. A sight draft was purchased for $550.62, exchange being at premium of 3%; what was the face?

5. An agent in Syracuse, N. Y., having $1324.74 due his employer, is instructed to remit the same by a draft drawn at 30 days; what will be the face of the draft, exchange being at 1 % premium? Ans. $1310.22—.

6. My agent in Charleston, S. C., sells a house and lot for $7500, on commission of 1%, and remits to me the proceeds in a draft purchased at % premium; what sum do I receive from the sale of my property?

17350.75=

7. A man in Hartford, Conn., has $4800 due him in Baltimore; how much more will he realize by making a draft for this sum on Baltimore and selling it at % discount, than by having a draft on Hartford remitted to him, purchased in Baltimore for this sum at % premium? Ans. $11.73+.

8. The Merchants' Bank of New York having declared a dividend of 61%, a stockholder in Cincinnati drew on the bank for the sum due him, and sold the draft at a premium of 1%, thus realizing $508.75 from his dividend; how many shares did he own? 80 9. Sight exchange on New Orleans for $5000 cost $5075; what was the course of exchange? Ans. 1% premium.

CASE II.

600. To compute foreign exchange.

601. The following standards of the decimal currency of the United States were established by the coinage act of 1873:

602. Money of Account consists of the denominations or divisions of money of any particular country in which accounts are kept.

NOTE.-The Act of March 3, 1873, provides that "the value of foreign coin, as expressed in the money of account of the United States, shall be that of the pure metal of such coin of standard value; and the values of the standard coins in circulation, of the various nations of the world, shall be estimated annually by the Director of the Mint, and be proclaimed on the first day of January by the Secretary of the Treasury."

*This "CASE on foreign exchange has been so modified as to conform to the Act of March, 1873, and only such changes have been made in the Tables and Examples as were necessary to adapt them to that law, and to the usage of 1875.