rlying element of weakness.

Of a somewhat different character are the foreign exchange transactions
originating from what might be called Europe's "floating" investment in
American securities and from the out-and-out speculations carried on in
this market by the foreigners.

There is never a time, probably, when the floating foreign investment
in American stocks and bonds does not run up with the hundreds of
millions of dollars. "Speculation," such operations would probably be
called by many people, but whether speculation or not, a form of
activity which is continually giving rise to big dealings in foreign
exchange. For this "floating" investment is very largely for account of
bankers whose international connections and credit make it possible for
them to carry stocks and bonds through the agency of the exchange
market, and without having to put up any actual money. The ingenious
method by which this is accomplished is about as follows:

A banker here, for instance, decides that a certain low-priced bond is
cheap and that if purchased it will show a substantial profit within
six months or a year. Not wanting to buy the bonds and borrow on them
here, he invites his foreign correspondent into the deal on joint
account, arranging to raise the money with which to buy the bonds by
drawing a ninety-day sight draft on the foreign correspondent. This he
does, drawing, say, a L50,000 draft at ninety days' sight, and selling
it in the exchange market at, let us say, $4.83.

The $241,500 received from the sale of the draft, the American banker
uses to buy the bonds. Ninety days later the draft will come due in
London, and have to be covered (or renewed) from this side, but in the
meantime, a profitable chance to sell the bonds may present itself. If
not, the draft can be "renewed" at the end of the ninety days, and
again and again if necessary, until the bankers are willing to close
out the bonds.

This operation of "renewing" long drafts drawn for the purpose of
carrying securities is one of the most interesting phases of foreign
exchange business in connection with international security dealings.
The draft has been drawn, say, for L50,000. The end of the ninety-day
period comes, the draft is due, is presented, and has to be paid. But
the bankers do not choose to sell out the bonds and close the deal.
They arrange instead to renew the maturing draft. This they do by
paying the original ninety-day draft out of the proceed