U F. T. Lloyd-Dodd on 



to suit our merchants, because the drawing and negotiating of a 

 foreign Bill requires a knowledge of the Exchanges which they 

 do not always possess. As a result the settlement of our foreign 

 trade is largely effected by Bills of Exchange which are drawn 

 and negotiated abroad, and accepted and paid in London. 



This adds a further complication, because it is necessary to 

 view the Exchange from the foreign standpoint. An increase of 

 price is not usually desired by the buyer of an article, but in the 

 case of the foreign exchanges an increase in the rate means that 

 more foreign money is given for a sovereign. 



In the example which we took the debts were equal and 

 exchange would be at par, but what if they are admittedly 

 unequal 1 What happens if more bills are wanted than are 

 offered for sale? Naturally the price rises. As buyers find that 

 there are not enough bills to go round, they bid against one 

 another, and the price goes to a premium. As soon as the price 

 advances sufficiently other means of remittance become available 

 in the form of Bankers' Drafts. If the demand still continues, 

 the balances on which the banker draws become exhausted, so he 

 must find some way of covering his draft by remittance. What 

 he does is to buy bills on other countries, send them to his cor- 

 respondents there, and request that they will remit for his 

 account in London. So long as suitable bills on other countries 

 are obtainable, the rise in the London rate will be held in check, 

 but as they grow scarcer the price must rise, with the result that 

 the Exchanges of other countries are set moving in the same 

 direction. The general rule of P]uropean exchange movements is 

 that the exchanges all rise together or fall together. If the de- 

 mand for Bills on London continues, the cost of covering drafts 

 increases, and finally we reach the stage when it is cheaper to 

 send gold than to buy Bills of Exchange. This point is called the 

 Export Gold Point, and for France is 25-32. A Gold Point is 

 simply the point above or below the par of Exchange at which it 

 becomes cheaper to remit gold, paying the cost of carriage and 

 insurance, than to buy Bills of Exchange. 



