First, a bill at short date or at sight, provided it be of first class, will command a better proportionate price than one drawn at a long date, on account of its more speedy realisation, also the contingency of failure of the parties to the instrument at a long date is avoided.

Another consideration is the state of the money market in the country where the bill is made payable, which also affects the exchanges. A bill bought for ready money must, if it have a long time to run, suffer a deduction in price, and this deduction will be regulated according to the value of money where it is accepted, for it is there that the bill will have to be discounted.

On the other hand, the price of bills is also very much dependent upon the state of the money market in the country where the bill is drawn. Tightness of money will force sales of foreign bills, and in times of panic the fluctuations of the course .of exchanges are very considerable.

But the most important consideration entering particularly into the rate for 'long' bills is the credit of the parties whose names are on the bills. Apprehensions with respect to them will bring about very large differences in the exchanges. It must be remembered that although a certain rate of exchange may exist for bills at a certain time, sellers will differ a fraction in the price they demand, according to circumstances. The purchaser of a first class-bill must expect to pay more, for less risk, than if he bought a second-class bill. It may even happen that long-dated paper will command a higher price than shorter dates, when the credit of the parties to the long bills stands higher in the market.

All these causes are at work in determining the course of exchanges, and to one or the other of them the fluctuations in the rates will be due. Which cause exercises the predominating influence in each single case can only be decided by observing closely and minutely the state of the money markets, the relative value of the precious metals, the political aspects and prospects, and the general current of trade.

The exchanges which we have so far inquired into are the foreign exchanges; but there are also 'inland exchanges.' The debts of two cities of the same country are, like international debts, as much as possible liquidated by bills, and if the debts are at times unequal there will be a demand for the bills on the city to which the largest account is owing and their price will rise to a premium. London, for instance, always has a large balance in its favour, being a centre to which payments have constantly to be made, and hence the premium on bills on London. If Liverpool had to remit to London £100,000 and to receive £50,000, the demand for bills on London at Liverpool would exceed the supply by the difference.

We have employed several times the term 'favorable' or 'unfavorable' in reference to the state of the exchanges, and we shall now explain what this means.

If bills upon Paris are offered in London more than demanded, the exchange on Paris in London will be at a discount, whilst the bills drawn from Paris upon London will be at a premium. This indicates a larger indebtedness of France to England than of England to France, and it is customary to call such an exchange ' favorable' to England and 'unfavorable' to France. The expression is a remnant of the times when the world was judging of international trade by the doctrines of the 'mercantile theory,' which taught that foreign trade is profitable in proportion as it brings specie into the country. From this point of view an exchange which indicated a larger indebtedness of foreign countries to England than of England to foreign countries was of course " favorable," for it indicated the tendency of specie to come into the country. To-day the mercantile theory has no champions, but still there is from the purely commercial point of view a justification of the continued use of the expressions 'favorable' and 'unfavorable,' The former means, as we have seen, that bullion is likely to be imported, the latter that it will most likely have to leave the country. Now, our home and foreign trade, immense as they are, are carried on on a comparatively small reserve of bullion, the greater part of which is held by the Bank of England, and in the ordinary way a withdrawal of only a few millions of gold will affect the money market; it, is, therefore, of great concern to every merchant in this country whether the exchanges are 'favorable' or not, for in the latter case bullion may be largely exported, and he may have difficulty in meeting his engagements. The means, however, by which we now try to correct an adverse state of the exchanges are very different from those employed by the advocates and disciples of the mercantile theory. The latter tried to correct the exchanges by checking imports and encouraging exports of merchandise - a suicidal policy; we now administer a check to overtrading by a rise in the rate of discount. Capital is to-day to a large degree international and a rise in the rate of interest here above that ruling abroad will attract it. We therefore find that a sufficient advance in the Bank of England rate of discount is invariably followed by a turn of the exchanges in favour of England, and a fall in the rate tends to produce an opposite effect. A high rate of interest ruling in London causes a demand for bills on that city with a view of profiting by the higher value of money; at the same time foreign bills held in England will be offered for sale upon the market.

In speaking of the effect produced upon the money market by the changes in the Bank rate, it should be stated that the Bank has of late years distinctly lost much of the power rapidly to affect the value of money outside, which it formerly possessed. This is owing mainly to two circumstances. One is that the Bank has, comparatively speaking, ceased to be a competitor, except in special circumstances, for commercial bills in the discount market, and from this cause its ' turn over' as a rule is small. This fact has been brought to light by Parliamentary returns which were moved for in the House of Commons, and explains one of the causes why the Bank has more difficulty in turning the foreign exchanges in favour of this country when the necessity arises than was the case when it did regularly a larger part of the discount business of the London market. If for instance the Bank is discounting, say, on an average £100,000 a day of bills, by holding its hands awhile the demand is forced into other quarters, the floating supply outside is absorbed, and a more immediate response to the rise in its own rate of discount is ensured. By having such a small amount of bills as a rule maturing in a day there is very little money to pay to the Bank, and any such action as that referred to would consequently in such circumstances produce no appreciable effect. To protect its gold therefore other tactics have to be resorted to. Instead of daily maturing bills of exchange the Bank holds larger amounts of Government stocks, and it is by borrowing on these securities that the floating supply of money is absorbed, its value raised, and the foreign exchanges affected as desired. During very long periods of cheap money the Bank no doubt finds this device answer the purpose in a roundabout fashion, and may be it makes as much profit and less loss in the long run. On the other hand, the leading bank in the country is now and again rather an object of ridicule, for the reason that one notice sometimes follows another announcing an advance in its minimum rate of discount, and the outer market is no more affected than was the flowing tide by Canute in his chair. Thi3 is a course of proceeding which at all events can be covered up by abolishing that part of it which reveals its weakness.