The fluctuation in the price of exchange, or, as it is termed, "the rate of exchange," is due to a number of causes. If the value of the goods we exported greatly exceeded the value of the goods we imported during a certain period, the large balance due us from other countries would, if there were no other international transactions to offset them, cause the price of exchange here to be lower, for the reason that there would be less demand for remittance to foreign countries, since it is always the difference between the debits and credits that is remitted. On the other hand, if we owed foreign countries a much greater amount than they owed us, exchange here would be higher by reason of increased demand for it.

But it is not alone our foreign commercial trade that regulates the price of exchange. The monetary conditions here and abroad may entirely offset other conditions.

When the loaning rate for money here is high, capitalists and bankers will loan their money here, instead of investing in foreign commercial bills, which causes less demand for bills, hence lower rates. If rates for money abroad are high, there will be a greater demand for commercial bills or other exchange on foreign countries, for the purpose of getting their money to those countries to take advantage of such high rates, thereby causing higher rates. If the rates for money abroad are lower than here, our capitalists and bankers would borrow money in their markets for investment here, thus increasing our indebtedness to foreign countries, and when such loans became due there would be an increased demand for exchange to pay these, resulting in higher rates.