16 F. T. Lloyd-Dodd on 



it difficult for us to measure exactly the influence of each. In 

 most cases the best explanation we can give of an exchange 

 movement, is to settle upon one or perhaps two prominent causes 

 which we know to be at work, and to theorize about the 

 remainder. The question turns on the interaction of snpply 

 and demand, and I would like to remind you here that it must be 

 viewed from the foreign standpoint. So far as our exchange is 

 concerned it is the supply of bills drawn on London, as compared 

 with the demand for such bills, that controls the rate of exchange. 

 These bills mainly arise from (a) Trade Transactions (6) Stock 

 Exchange Transactions and (c) Banking Transactions. Bills are 

 drawn on London against our trade imports, against securities 

 owned by foreigners and sold in London, or securities bought 

 abroad by Englishmen ; against loans made to foreign G-overn- 

 ments, railways or companies, and interest on money borrowed 

 abroad ; against bankers' credits ; and for arbitrage and 

 speculative transactions. The greater the supply of these bills, 

 the more the exchange moves against us. On the other hand, 

 there is a demand for these bills by foreigners, in order to pay 

 for our exports of goods to them, for freight, brokerage, and 

 commission ; for securities bought in London for foreign account 

 or sold abroad for London account ; for interest on loans, and 

 dividends on foreign securities held here ; for the creation of 

 new bank credits or to cover drafts ; to pay for arbitrage and 

 speculative transactions, and for investments. The greater the 

 demand for bills to make such payments, the more the exchange 

 will move in our favour. You can see, however, that with such 

 a variety of payments outwards and inwards, and with such a 

 complexity of influences on supply and demand, it is difficult 

 always, and sometimes impossible, to account accurately for the 

 fluctuations in the Foreign Exchange. 



One other influence on the rate of exchange should be 

 noticed, and that is the Discount Rate. .A low rate of discount 

 in this country, as compared with that prevailing abroad will set 

 the Exchanges moving against us; whereas a comparatively high 



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