The third kind of bankers' long bills are finance bills. A finance bill is a draft drawn by a banker in this country on a foreign banker for the purpose of securing funds here for the time being and with the intention of meeting the draft at maturity by the purchase of demand sterling. American finance bills are drawn at thirty, sixty, or ninety days, and usually are not covered by collateral security. The foreign banker who accepts these drafts becomes, as it were, an accommodation in-dorser, and is responsible for their payment at maturity if they are not met by the drawer. Naturally, therefore, only the best houses with strong foreign connections and high credit can float such bills. The drawee bank charges a commission for accepting the bill varying from 1/16 to 1/16 of 1 per cent, according to the tenor of the bill, the financial responsibility of the drawer, and the character of the security if the bill is covered.

1 For a full discussion of this subject, see Eseher, pp. 83-94.

The conditions under which it is advantageous for the banker to raise funds by drawing finance bills vary with the season of the year and other factors. Primarily, of course, the use of the finance bill is based upon the idea that the banker can borrow funds abroad where money is cheap and lend them at home at a higher rate. But the condition of the exchange market is always a prime consideration. After the banker sells his finance bill at ninety days the operation is only half completed. When the bill matures he must buy sight exchange and send it to his correspondent to meet the bill. His profit depends then to a great extent upon the price at which he is able to "cover," that is, purchase sight exchange to meet his maturing finance bill. In the summer months money is apt to be low and exchange high, but during the fall and early winter when exports are moving out in great volume there is a plentiful supply of bills, and at that time bankers, who have put out bills in the summer, can generally purchase sight exchange at a low rate to cover their maturities. In calculating the profit made in the handling of finance bills there is on one side of the balance the proceeds from the sale of the ninety-day draft, which will be close to the face of the draft as the discount rate in England is low, plus the interest received from the loaning of the proceeds; on the other side is the price paid for demand exchange at the end of the ninety days plus the commission charged for acceptance by the foreign banker. There is a strong element of speculation in the handling of finance bills, but it affords opportunity for Large profit and many of the big exchange bankers engage in it.