It must not be thought that all bills are drawn on London, but London draws comparatively few bills on other countries. If an Englishman owes money to a foreigner he can either ask the foreigner to draw upon London, or he can buy and remit to him a bill payable in the capital of his own country, and vice versa. In practice London pays by accepting bills drawn upon herself, while other countries pay London by buying bills on London and remitting them by post. It can easily be seen, therefore, that the foreign exchanges are of greater interest to the foreigner than to the Englishman. The foreigner deals largely in sterling bills, which are to him foreign bills, and the rate of exchange is of great importance, because upon it depends the cost of the bill to him. But when they reach this side they cease to be foreign bills to the Englishman, being usually drawn in pounds, shillings and pence. In England foreign bills are, except for the purposes of the Stamp Act, bills payable in other countries, and the number of these dealt with in London is comparatively few.

Foreign bills are bought and sold at the various financial centres, and their value is determined like that of other commodities. If the demand for bills drawn on a particular centre is in excess of the supply, the price rises; if, on the other hand, there are more bills offered for sale than there are buyers, the price will decline.

The price of bills is varied, not by adding to or deducting from the total of the bill, but by alterations in the rate at which the currencies are converted, and it is therefore in the rate of exchange that the chief interest is centred.

Bates are quoted in various ways. Foreign countries quote rates in their own coinage, but London in most cases quotes in the same way as she is quoted. For instance, Paris quotes London in francs to the £, and London quotes Paris in the same way. But in one or two instances rates are quoted in London in pence to the foreign unit; for instance, London quotes St. Petersburg in pence to the rouble, while St. Petersburg quotes London in roubles to the £10. We quote Madrid in pence to the peso, while Madrid quotes London in pesetas to the £. New York quotes us in dollars to the £, while we quote New York both in pence to the dollar and in dollars to the £.

The place where foreign bills are bought and sold in London is the Royal Exchange, where bankers, merchants, and bill brokers meet on Tuesday and Thursday in each week, and as the result of their dealings lists of rates are issued and published in the next morning's papers under the heading "Course of Exchange."

The following is a recent Course of Exchange as published in the "Times" (a). The fourth column is added here for the convenience of students:

(a) August 26th, 1904, London Course of Exchange.

The above are the rates quoted in London for bills or cheques payable at the places mentioned. This London Course of Exchange must not be confused with the table of Foreign Rates of Exchange on London which appears in each day's paper. These latter rates are the prevailing rates on the "bourses" of the centres named for bills or cheques on London, and are cabled from those centres to London each day.

Appended is a table of the cabled rates on London extracted from the "Times" of the same date as the above Course of Exchange. Explanations have been added where necessary.

Exchange On London At Dates

* We quote Amsterdam in florins and stivers, but Amsterdam quotes London in florins and cents, 5 cents being equal to one stiver.

Turning, first of all, to the Course of Exchange, it will be noticed that two prices are quoted for each centre. One of these is for first-class paper, and the other for ordinary trade bills. In the case of those rates quoted in foreign units to the pound sterling, the first or lower rate is the rate for first-class bills, the second for commercial bills. But, on the other hand, in the case of those quoted in pence to the foreign unit, the first or lower rate is that for commercial bills, while the higher is that for bank bills.

The reason why there is a difference between the rates for first-class and for commercial bills is this: Supposing an Englishman buys a bill on Paris at three months and remits it to his creditor there. The latter will very likely wish to realise the proceeds, and will therefore offer it to his banker for discount. But the banker will charge a higher rate for discounting trade bills than he will for bank bills, to cover the increased risk; for this reason, trade bills do not command such a good price on 'Change.

This, of course, only applies to the "long" or three months' rate quoted in the Course of Exchange. In the case of the "cheque" rates the reason for the existence of a double quotation is that this rate usually includes bills which have not more than ten days to run, and that cheques fetch a slightly better price than such bills.

Perhaps the greatest difficulty in understanding allusions to a Course of Exchange lies in the different meanings attached to the terms "rise" and "fall." This difference arises from the fact that owing to the anomalous system prevalent in England, London quotes some rates in sterling and others in the coinage of the place quoted. Thus a rise in the nominal rate of the former class means that the man who wishes to buy a bill will have to pay more for it, while a rise in the rate of the latter class has the reverse meaning. For instance, a rise in the Paris rate of exchange quoted on the London Exchange means that the same sum of English money will purchase a bill on Paris for an increased sum in francs. On the other hand, a rise in the Russian rate means that the English remitter will have to pay a greater sterling amount for a bill of the same amount due in St. Petersburg.

Remember, therefore, that the terms rise or fall of the exchanges refer simply to the nominal amount of the rate quoted, and may mean either a more favourable or less favourable rate for the buyer of the bill.