The discount rates at London, Paris, Berlin, and other European centers very materially affect the buying and selling price for commercial bills drawn against commodities exported. These discount rates are the rate per cent at which commercial paper of the different classes may be discounted - that is, the allowance made for cashing or taking up the paper before maturity or before due and payable. These discount rates fluctuate according to the conditions prevailing, as does the rate of exchange. When discount rates abroad are high, the rates for commercial bills here will be lower, and when low abroad, the rate for commercial bills here will be higher.

Under normal conditions, the rates for foreign exchange fluctuate between what are termed gold-exporting or gold-importing points, which means the actual cost of the gold plus the cost of transporting it from one point to another.

For example: If you wished to remit, say, to London the equivalent of £50,000 (or approximately $250,000), and you found that the cost of the gold coin or bullion and the expense of freight, insurance, commissions, etc., would be considerably less than the cost of a draft or check for the amount on London, then you would ship gold in preference. If the cost were equal or greater for shipping gold, then you would remit by check, as it would be more convenient and less risk. Therefore the rates naturally do not go much above or much below the gold points.

When the rate for demand sterling exchange gets down to, say, $4.83 3/4 to $4.84 per pound, it is cheaper to import gold. If such exchange reaches as high as $4.84 1/4 to $4.88 1/2 per pound, then gold can be exported equally cheaply.

But notwithstanding these various conditions which affect the market price for foreign exchange, it is the supply and demand that regulate the price, as in the case of wheat, corn, or any commodity.