ets
may be, it is in its application to the every-day importing and
exporting of merchandise that foreign exchange has its greatest
interest for the greatest number of people. Every bale of cotton
exported from the country, every pound of coffee brought in, is the
basis of an operation in foreign exchange, such operations involving
usually the issue of what is known as "commercial credits."

Broadly speaking, commercial credits are of two classes, those issued
to facilitate the import of merchandise and those issued to facilitate
its export. Considering the question from the standpoint of New York,
import credits are so much more important than export credits and
issued in so much larger volume, they will be taken up first.

Not all the merchandise imported into the United States is brought in
under commercial letters of credit, but that is coming to be more and
more the way in which payment for imports is being arranged. Formerly
an importer who had bought silk or white-goods in France went around to
his banker, bought a draft on Paris for the required amount of francs
and sent that over in payment. In some cases that is still the method
by which payment is made, but in the very great majority of cases where
the business is being run on an up-to-date basis, a commercial letter
of credit is arranged for before the importation is made. Of how great
advantage such an arrangement is to the merchant importing goods the
following practical illustration of how a "credit" works will show.

[Illustration: Form of Commercial Letter of Credit]

To exemplify the greatest number of points of importance possible in
connection with the commercial credit business, the case of a shipment
of raw silk from China will, perhaps, serve best. A silk manufacturer
in Paterson, New Jersey, we will assume, has purchased by cable ten
bales of raw silk in Canton, China. Understanding of the successive
steps in the financing of such a transaction will mean a pretty
satisfactory understanding of the general principles under which the
financing of most of our imports is arranged.

The purchase of the silk having been consummated by cable, the first
thing the purchaser would do would be to go to his banker in New York,
lay before him an exact statement of the conditions under which the
purchase was made, and get him (the banker) to open a commercial letter
of credit covering those terms. Such a credit, of which a reprint is
given herewith, would