S44 READINGS IN RURAL ECONOMICS 



purchase and a sale under a term contract. Such a mode of dealing 

 is characteristic of exporting regions where there is a keen com- 

 petition for the product so that exportation is not a matter of 

 course. In regions that seek a vent for a large surplus, the 

 transaction is somewhat altered, though the underlying features 

 are the same. Australian and Indian wheat are consigned to 

 London agents to be sold on commission. Sale in some English 

 or European port is assumed. Notice of the departure of the 

 vessel is forwarded ; samples and documents of title will also be 

 sent and will presumably arrive considerably in advance of the 

 ship. The vessel may be sent out with directions to call at 

 Gibraltar for orders as t6 final destination. The London com- 

 mission agent proceeds to sell the cargo while still afloat on a 

 "to arrive" contract. Purchase and sale are not simultaneous, 

 and in that sense the actual character of the deal is for a time 

 indeterminate. The shipment of the wheat may involve a real 

 speculation or it may be sold quickly and become in essence an 

 arbitrage transaction. 



Among the various primary markets in the producing regions 

 of the United States another form of transaction is not uncom- 

 mon. It is not a true arbitrage deal because it does not contem- 

 plate actual shipment of goods by the operator. The transaction 

 is affected by a simultaneous purchase and sale of term contracts 

 in the high and low markets. A term contract is bought in the 

 low market, and a contract for an equal quantity sold short in 

 the high market. It is assumed that the operations of other 

 parties will bring the markets closer together and afford a small 

 but certain gain. 



Thus let us assume that on a given day in June the price of 

 September wheat on the Minneapolis Chamber of Commerce is 

 $i per bushel, and the price on the Chicago Board of Trade for 

 the same wheat is $1.04, and that an arbitrageur considers this 

 difference too large and anticipates a coming together of the 

 two prices. Accordingly, he buys on a future contract in Min- 

 neapolis and sells short in Chicago at the prices indicated. Let 

 us now suppose that in the course of a week the Minneapolis 

 price rises to $1.04 and the Chicago price to $1.07.1 and that 



