12 F. T. Lloyd-Dodd on 



Bills — Foreign Bills of Exchange. Let us take a very simple 

 example to illustrate the manner in which this is effected — 

 LONDON. PARIS. 



A -^B 



^^ t 



D ^ C 



Suppose a merchant "A" in London buys goods value £500 

 from a merchant B " in Paris ; and suppose another man C " 

 in Paris buys goods worth £500 from " D " in London. ' B " 

 now draws a Bill of Exchange on " A " for £500, and sells it to 

 "C." "C" transmits the Bill to " I) " in settlement of his 

 account, and " A " pays " D " the amount on presentution. Thus 

 two transactions are settled by the one Bill of Exchange without 

 the necessity of shipping gold from one country to the other. 



In this example we have presumed individual traders, but 

 individuals may be taken as types of classes. The relations 

 between these classes are carried out by intermediate dealers who 

 make foreign exchanges their special business. The exporter of 

 commodities sells his Bill to a broker, who in turn sells it to an 

 importer for the purpose of being transmitted to a foreign country 

 in payment for goods. 



So far we have only noted the principle of indebtedness, but 

 other complicating circumstances are at work. Bills are drawn 

 hourly, for different periods of time, by persons of varying degrees 

 of credit, and as a necessary consequence these influences are 

 shown in the market price of Bills. Again, each country has its 

 own peculiar currency system, so there is the necessity of 

 measuring the value of a Bill expressed in one currency in terms 

 of another. This difference of currencies is perplexing, and 

 renders calculations more difficult, but it does not create the 

 system of foreign exchange, which arises from the principle of 

 indebtedness and the cost of transmitting money from one place 

 to another. 



Owing to the difference in currencies we require a fixed 

 standard or ratio to enable us to express money of one country in 



