Floating Debt

The floating debt of a corporation is the unfunded indebtedness; that is, indebtedness not represented by permanent security. Usually, floating debt consists of money directly borrowed; money owed for miscellaneous purposes, and money payable within a short period.

Foreign Exchange is, briefly, the payment of an obligation in a given place in one country by the transfer of a credit from a given place in another country by means of a bill of exchange, as for instance, a bill drawn in New York and payable in London.

For instance, A in London owes $100,000 or the equivalent in pounds sterling to B in New York; likewise C in New York owes $100,000, or the equivalent of that sum, to D in London.

A in London buys a bill of exchange on New York collectible in New York, for the amount of his obligation and forwards it to B in New York; likewise C in New York buys a bill of exchange on London collectible in London for the amount of his obligation and forwards it to B in London. Thus, both A and C have paid what they owed, while B and D have received what is due them, and no money has crossed the ocean in settling the accounts.

A merchant in New York usually pays for goods bought in Paris or London with a bill of exchange or draft purchased from a bank or banker in New York, which is payable by the correspondent in London or Paris, as the case may be, of the New York bank or banker. The bill of exchange thus saves trouble, time and expense to the remitter. It is payable in French or English money as the case may be, and is purchased at the equivalent in United States money. Such is the method where exchange is bought.

Following is an instance where exchange is sold: A in New York makes a shipment of goods to B in London for which immediate payment is to be made. A makes out a draft on B for the amount due him and attaching to the draft the bill of lading for the goods sells the draft to a dealer in foreign exchange in New York, who forwards it to his correspondent in London for collection from B. Thus, A receives pay for his goods as soon as they are shipped, and does not have to first ship the goods, then wait for them to reach London and then wait for a ship to bring back gold in payment for them, nor even to wait for the mail to bring back a draft bought by B in London on some bank or banker in New York; much less has he to wait for B to receive the goods, draw a check on his own (B's) bank in London and send it to him (A in New York) who would have to sell the check to some dealer in foreign exchange in New York. B, on the other hand, by receiving the bill of lading for the goods when the draft is presented to him for payment, knows not only that the goods have been shipped to him by A, but by possession of the bill of lading holds actual title to them.

Bills payable on demand or sight are called sight bills; bills payable in ten to thirty days are called short bills; bills payable in sixty days or in a longer period are called long bills. There are also cable transfers by which money (or credit) is transferred by cable. These for brevity are called cables. Bills drawn by banks or bankers against their credits abroad are called bankers' bills. These include letters of credit. Bills drawn against shipments of commodities or manufactures are called commercial bills. Specifically, grain-bills are drawn against grain shipped and cotton-bills are drawn against cotton shipped.

Founders' Shares

Shares which are sometimes given to the founders and promoters of a company; such shares generally divide the surplus profits with the common shares after a certain percentage has been paid on the latter. These shares are seldom created in this country, being chiefly the result of an English custom.

Franchise

A franchise is a privilege conferred by grant from a government or municipality to a corporation or an individual. For instance, the right to construct a railroad from one point to another and operate the same over a given period of years constitutes a franchise. Also, a privilege given to a street railway, gas or electric light company or water company to operate on certain streets or within certain limits for a given period more or less exclusively, constitutes a franchise. These franchises are, in modern times, very largely capitalized; the capitalization being measured by the value given to the property through its earning power. This earning power is of course fluctuating, and as the municipalities grow the earning power usually grows also. Therefore the franchise value which may have been small when the franchise was granted, sometimes grows to a very vast extent. Thus, the public utility franchises of New York City, many of which were of doubtful value when granted, have grown to be assets of enormous value and have been heavily capitalized.