424 REPORT— 1900. 



(The standard grade need not be here specified, provided that the fact that 

 the bargain is one in wheat of a named standard grade be remembered.) 

 The wheat is to be delivered in May, and the price to be paid is, say, 6s. 

 per cental. Suppose the term to i-un out and that B has not found a 

 convenient opportunity of reselling at a profit— in fact, that he expected 

 that the price would rise, while it falls steadily and persistently. When 

 May comes B must either take charge of the wheat and pay for it in full, 

 or, if he has no facilities for doing so, will be forced to sell ; in fact, the 

 latter may be his only means of providing the funds with which to pay 

 for his purchase. If the price has fallen to 5s. 6d., he realises l,250l 

 less than he needs to make this payment. Should this be not a solitary 

 contract, but one of a score, averaging equally bad results, the dealer, if 

 not a wealthy. man, may find it difficult to provide the means of paying 

 for his purchases, and his bankruptcy may prevent such payment being 

 made. 



The holder of the wheat. A, may find that such a failure of B leaves 

 him to sell the wheat as best he can, and face the loss the risk of which 

 his sale to B ought to have removed from his shoulders. The short-settle- 

 ment system aims at reducing the risk of loss due to the assumption by 

 weak dealers of risks greater than the funds at their "disposal enable them 

 to cover, and thus at rendering business more secure, and, being more se- 

 cure, capable of being carried on with nari'ower profits. The parties to the 

 contract may (or in some cases must) deposit a sum of money sufficient to 

 cover any probable loss due to variation of price for a short time, and, 

 if prices vary beyond what the deposit can make good, must increase the 

 deposit. Thus, in the above case, the deposit may have been, say, o per 

 cent, of the contract price, or 750/. Should the price fall so as to indicate 

 to one party the loss of the whole of this margin in case of realisation at 

 the price of the day, he may decide that it is better to accept so much of 

 loss than to risk a greater, and he is helped to this decision by the need of 

 providing the means of meeting a greater loss, should it occur. The man 

 who would be most likely to fail to meet his obligations on their maturity 

 being, in general, the man most likely to find it difficult to spare the 

 deposit money from his business capital, is precisely the man who is, so to 

 speak, warned off by the pressure of the need to maintain the deposit. 

 In the case assumed, were the official price to fall to 5s. lid. on some 

 day shortly following the conclusion of the contract, the buyer would be 

 required to find 50,000 pence, or 2081. 6s. 8d., and to pay it, together 

 with a further margin. Should a further fall occur he would need to pay 

 a corresponding sum, while, in case of a recovery, he would be entitled to 

 receive part of his deposit again. This necessity to face losses as they 

 occur may be a hardship to a man whose ultimate forecast of profit is 

 realised, should the market go against him steadily and heavily for a con- 

 siderable part of the period between the contract and the due date of its 

 fulfilment. Yet, on the whole, the short-settlement system and the putting 

 up of margins do certainly tend to prevent men from assuming risks 

 beyond the power of their means to cover. The fact that, to persons who 

 would have no desire to make a contract for future delivery of goods and 

 to accept delivery in due course, a facility is afibrded to operate on the 

 market and to attempt to snatch profits fron day-to-day fluctuations in 

 prices, the daily (or weekly) settlement enabling them to make their 

 attempt and be very shortly free of all responsibility in regard to it, not 

 needing even to wait for the distant delivery month for the realisation of 



