Fliictiiations ui the Foreign Exchanges. 15 



Once the circumstances of a rise in the exchanges are clearly 

 understood, those of a fall present no difficulty. Slackening of 

 demand or increase of supply forces down the price. The drop is 

 limited by the anxiety of exchange dealers to pick up bargains. 

 If the drop is continuous, we arrive at the opposite extreme when 

 London paper becomes so cheap that it pays to use it to buy gold 

 at the Bank of England and transmit it to France. The rate at 

 which this will happen for France is 25-12, which is called the 

 Import Gold Point. 



Many economists would have us believe that the Gold Points 

 are fixed, and tha,t the rate of exchange cannot rise or fall 

 beyond the Gold Points without a movement in gold. In practice 

 however this is not so. The Gold export point for Germany is 

 theoretically 20 Marks 48 pfennings. In 1907 the Exchange 

 touched 20 Marks 60 pfennings, and in November 1912 stood 

 for some weeks about 20 Marks 53 pfennings without in either 

 case any gold being sent to London, And the same thing occurs 

 occasionally in other countries, which is simply an illustration of 

 the power of the State Banks to prevent export of gold when it 

 is not convenient. 



The ordinary rate of exchange, then, simply depends on the 

 balance of indebtedness between countries, and rises and falls 

 according to the demand for Bills. In certain of the Exchanges 

 this is subject to seasonal fluctuations. Thus in the case of the 

 United States there are usually large amounts owing to it in 

 the autumn, when cotton and cereals are shipped and sold 

 abroad. At other times of the year it usually has to make 

 remittances to meet the interest on foreign loans and investments. 

 As a result there is a regular ebb and flow in the fluctuations, 

 and during the last five months of the year the Exchange is in 

 favour of America, and against it in the first seven. 



Apart from such seasonal fluctuations the rise or fall of the 

 rate of exchange presents a problem which is difficult to solve. 

 A rate of exchange is the combined result of a variety of facts 

 and forces, which are so complex and so numerous, as to render 



