Another formality involved in the use of bills of exchange is that of acceptance. Before the payment of a bill drawn for a term can be enforced it must be presented to the drawee for acceptance. This is accomplished by the formality of writing or stamping the word "accepted" across its face over the signature of the drawee. The latter thus gives notice of his acknowledgment of the indebtedness and of his willingness to pay the bill at maturity. Frequently the drawee gives the bill a so-called qualified acceptance by specifying certain conditions, as, for example, that he accepts the bill for a certain specified sum only, or that he accepts it payable at a certain specified time, say three months from date, or on condition that it be renewed for a certain period of time, say six months, or that he be permitted to pay it in monthly instalments, or that it be paid at a certain place or bank and there only. When qualifying statements of this sort are added the process is technically known as a qualified acceptance.

C. The obligations of endorsers. - In order that bills of exchange may perform their functions, it is necessary that the rights and obligations of the different parties to them should be carefully defined, protected, and enforced. To this end every nation has developed a body of special laws, with which dealers in bills must be perfectly familiar. For the purposes of this book it is necessary only to describe such features of these laws as are essential to an understanding of the nature and economic uses of these instruments.

To the parties to the bill of exchange mentioned in the preceding section should be added the endorser and the endorsee, who figure prominently in the laws pertaining to these instruments and who exert a considerable influence upon their value. The endorser guarantees to the endorsee that the bill, if payable after sight, will be accepted upon presentation, and that it will be paid at maturity, either by the acceptor or, in case of his default, by himself. On account of the liability thus assumed by endorsers, the element of risk involved in the possession of a bill of exchange decreases with the number of its endorsements. For example, a person who possesses a bill which has been endorsed many times has recourse for payment not only to the original acceptor and drawer, but to every endorser. In case, therefore, that the original parties to the bill are not financially sound, the endorsers, one and all, may be of so great financial stability as to render the bill first-class. The order of the liability of the endorsers is prima facie that in which they appear upon the bill, each subsequent endorser, in case he is called upon for payment, having recourse to all those whose names precede his, as well as to the original acceptor and drawer.

It is because of this peculiar characteristic that bills of exchange drawn for a term constitute such an excellent form of investment for banks. No sounder securities can be conceived than bills bearing numerous endorsements which originated on account of an actual transfer of goods or other valuables from one part of the world to another. The sale of the goods or the employment of the values creates the means for the payment of the bill in the first place, and in addition to that the holder has recourse to all the endorsers in case of failure to pay on the part of the original acceptor. In order to throw a special safeguard about the banking business, many States, as we have already seen, require a certain number of endorsements on bills or notes in which banks are permitted to invest.

Inasmuch as the enforcement of the liability of endorsers is always conditioned upon strict conformance to certain legal requirements, it is necessary that all persons having anything to do with these instruments should be sufficiently familiar with the laws of the country in which the bill is payable to enable him to comply with all the legal requirements necessary to make possible the enjoyment of all the advantages which the bill in question is capable of yielding.

D. The market for bills. - In order to perform their function bills of exchange must be sold by those who draw them and purchased by persons who have payments to make in the places upon which they are drawn. In the illustration used in a previous section the exporter of wheat from New York received his pay by selling a bill of exchange upon his creditor, while the New York importer paid for his London woollens by purchasing a bill on London and sending it to his creditor. The negotiation of bills of exchange is, therefore, an important branch of business, and it is noteworthy that it is almost exclusively in the hands of bankers and a special class of middlemen known as bill-brokers. It rarely happens that a person who needs to make a payment in a distant place attempts to find an exporter who has a bill of exchange on that place to sell. Instead, he buys a draft of his banker, who subsequently settles his account with the correspondent upon which the draft is drawn by a bill of exchange purchased on the New York market. Similarly, it rarely happens that the drawer of a bill upon a creditor in a distant place attempts to find a purchaser in the person of an individual who has a payment to make in that place. Instead, he sells it to a banker or a bill-broker. The function of bankers in the negotiation of bills, however, is chiefly that of investors. Except in the case of their own immediate customers., they usually purchase bills of bill-brokers, and either keep them until maturity as an investment or send them to their correspondents as a means of meeting debts or creating favourable credit accounts. The bill-brokers are, therefore, the real specialists in this line of business, and thus constitute the chief intermediaries between the drawers of bills and those who purchase them. By familiarizing themselves thoroughly with the financial standing of the various individuals and firms who offer bills for sale they are able correctly to estimate the amount of risk involved in their purchase, and thus become experts in distinguishing the good from the bad. Inasmuch as the purchasing broker must endorse a bill in order to transfer its ownership to a banker, the latter has the additional security of this endorsement, which, in the case of a firm with wide reputation, is a sufficient guarantee against loss from this form of investment.