rters of merchandise frequently quote prices to customers
abroad for shipment to be made in some following month, to establish
which fixed price the exporter has to fix a rate of exchange definitely
with some banker. "I am going to ship so-and-so so many tubs of lard
next May," says the exporter to the banker, "the drafts against them
will amount to so-and-so-much. What rate will you pay me for
them--delivery next May?" The banker knows he can sell his own draft
for May delivery for, say, 4.87. He bids the exporter 4.86-1/2 for his
lard bills, and gets the contract. Without any risk and without tying
up a dollar of capital the banker has made one-half cent per pound
sterling on the whole amount of the shipment. In May, the lard bills
will come in to him, and he will pay for them at a rate of 4.86-1/2,
turning around and delivering his own draft against them at 4.87.

Selling futures against futures is not the easiest form of foreign
exchange business to put through, but when a house has a large number
of commercial exporters among its clients there are generally to be
found among them some who want to sell their exchange for future
delivery. As to the buyer of the banker's "future," such a buyer might
be, for instance, another banker who had sold finance-bills and wants
to limit the cost of "covering" them.

The foregoing examples of dealing in futures are merely examples of how
futures may figure in every-day exchange transactions. Like operations
in exchange arbitrage, there is no limit to the number of kinds of
business in which "futures" may figure. They are a much abused
institution, but are a vital factor in modern methods of transacting
foreign exchange business.

The foregoing are the main forms of activity of the average foreign
department, though there are, of course, many other ways of making
money out of foreign exchange. The business of granting commercial
credits, the exporting and importing of gold and the business of
international trading in securities will be taken up separately in
following chapters.

CHAPTER VII

GOLD EXPORTS AND IMPORTS

Gold exports and imports, while not constituting any great part of the
activity of the average foreign department, are nevertheless a factor
of vital importance in determining the movement of exchange. The loss
of gold, in quantity, by some market may bring about money conditions
resulting in very violent movements of exchange; or, on the other hand,