Bills payable, say, at sixty days' sight, are drawn by the American banker on London. These are negotiated either by the banker or the borrower, the latter, in any event, getting the proceeds. Suppose, at the time when the bill is drawn, the net rate of exchange is $4.85 for the " pound," then a "sterling loan" for £10,000 would cost $48,500. Deduct from this the banker's commission of perhaps one half of one per cent. - $242.50, leaving net amount paid to the borrower $48,257.50. At the end of sixty days the loan will have to be paid on the basis of the rate of demand " sterling exchange " then ruling, which, in this suppositional case, we will figure at $4,885, making the amount due $48,850, and subtracting from this the original amount of $48,257.50 we have left $592.50, which is the interest paid for the use of the money for sixty days, or at about the rate of 4 1/4% yearly.
"Sterling loans" differ from "foreign loans" in that the former are almost exclusively drawn upon London.