There are two kinds of exchange - direct and arbitrated. Direct is when between any two countries; arbitrated, when between two places in different countries through the medium of some other place in another country ; or, to express it more clearly, the remitting of money to one country through another country, or the buying of exchange of one country through another.

The occasion for the arbitration of exchange will arise when the rate of exchange here direct upon a country to which you wish to remit is much higher than between that country and another country near by.

For illustration: Through the financial columns of our daily papers, or by tabled information direct, the rate for a check in London on Paris or Berlin, or vice versa, is furnished. It generally reads, for example, this way: "Exchange on Paris F. 25.12; exchange on Berlin M. 20.42." This signifies that you can buy in London, for instance, a check payable in Paris at the rate of 25 francs 12 centimes per pound sterling, or on Berlin at the rate of 20 marks 42 pfennige per pound sterling. Therefore, if you had occasion to remit a large sum to, say, Berlin, and you found you could buy a check on London and have the amount remitted from London to Berlin cheaper than you could remit to Berlin direct, the transaction would be termed "arbitration of exchange." All large banking houses and jobbers of foreign exchange watch the quotations on exchange between countries very closely, and always avail themselves of any advantage to be gained by remitting to one country through another.