Imports And Exports

When a merchant in London sells goods to a merchant in Paris, the goods form an exportl in respect of England, and an import1 in respect of France. And so vice versa. With regard to the export from London, the English merchant is a creditor of the French merchant; that is to say, the French merchant owes him the price of the goods: similarly, for the export from France, which is an import into England, the French merchant has sold goods to the Englishman, and the latter is a debtor to, or owes the cost to, the French exporter. Now expand the illustration to the dimensions of the aggregate trade between the two countries, - reciprocal purchases and sales, - so that some English merchants owe money to French merchants for commodities which the former have received, while other English traders are creditors of different French merchants for goods which the latter have bought. How is this mutual indebtedness, part one way, part the other, to be settled? - all settlements, it being remembered, though effected through the immediate agency of cheques and bills of exchange, depending ultimately upon the payment and receipt of gold.

1 Export: Import: derived respectively from the Latin ex, out of, in, into, and portare, to carry.

Par Of Exchange Between England And France

As the two countries have different coins the first question obviously to examine is the relative value of the coins in respect of the pure gold which the sovereign and the franc respectively contain, since that number of francs alone is equal to and exchangeable for a number of sovereigns when the number of francs and the number of sovereigns are composed of the same quantity of pure metal. It is found that the pure gold in about 25.22 francs (more exactly 25.2215 or 25 francs and 111/500 of a franc) is precisely the same in quantity as the pure gold in one sovereign. Hence 25.22 francs can be exchanged for a sovereign without loss to either party to the transaction.

Remittances Of Gold Between France And England Inconvenient And Cumbrous

But it would clearly be most inconvenient and cumbrous - involving also the cost of carriage across the Channel, and the premium upon the insurance of the gold to cover the risk of loss through shipwreck - that France as a whole (or an industrial trader in France) should remit gold to pay debts due in England for purchased goods, and, conversely, for a merchant or a body of merchants in England to discharge their debts in France by a similar process. Hence, just as we pay and receive payment of our debts in England between one another by cheques, so this indebtedness between one country and another, resulting from mutual trading, is settled by foreign bills of exchange.

Foreign Bill Of Exchange

A bill of exchange, passing between merchants trading with each other in England, has been explained as simply an order made by the person who has sold goods upon him who has bought them to pay a sum of money to the issuer of that order (or the person to whom he may transfer his right) which shall be equivalent to the value of the goods. In a similar way - where the case involves merchants in different countries - the foreign bill of exchange is simply an order that, in consideration of a given amount of the money of one country having been paid in that country, there shall be delivered, in another country, at a specified time, and to a named person, a stated sum of money in the currency of the latter country.

Bill Brokers And Their Functions

Now there is a class of exchange dealers who meet twice a week in the Royal Exchange and buy the bills which English merchants have drawn upon foreign firms for payment of goods exported or sold from England; these merchants thus obtain from the dealers the immediate payment of their debts without waiting until the bills mature; other English merchants who have imported or bought goods from foreign merchants purchase these bills from the dealers (according to the locality on which they are drawn, and the amounts which the merchants owe abroad), which they transmit abroad in settlement of their own debts. Thus, as a simple concrete illustration: an English merchant is owing £100 from a foreign merchant, and another English merchant owes the same sum to the same foreign firm; the bill or order of the former upon the foreign merchant is sold to the dealer, and the commercial transaction between the two firms is closed. That bill is purchased from the dealer by the second English merchant, who forwards it to the foreign merchant; the latter cancels it, and the second transaction is also settled. The process is precisely similar, however numerous be the merchants in different countries who are debtors and creditors to each other in various transactions. Assume four merchants; and since symbols, when clear enough to call up instantly the concrete objects for which they stand, save needless expenditure of mental energy, let us designate one English merchant EM (by the initials of English merchant), a second English merchant EM2, a French merchant FM, and another French merchant FM2. FM buys goods from EM and has to send him the price of £100; EM2 purchases different goods from FM2 and has to remit £100 to him; if money were transmitted we should have the foolish spectacle of a vessel carrying £100 abroad and another vessel passing it with £100 for England. The simplification effected by a bill of exchange is here prominent: FM2 draws a bill or an order for the £100 on EM2, FM buys the bill and sends it to EM, EM presents it for payment on maturity to EM2, and EM2 discharges it. In this case one bill has sufficed to complete the entire settlement without the dispatch of a pound or franc.