illing to take business at any price for advertising or
other purposes.

Assume that an importer has taken out a ninety-day credit and is to pay
three-eighths of one per cent. on all drafts drawn thereunder, what
rate of interest is he actually paying, figured on an annual basis? The
life of the draft is ninety days, and he pays three-eighths of one per
cent.; in each year there are four ninety-day periods; figured on an
annual basis, therefore, the importer is paying four multiplied by
three-eighths of one per cent., equalling one and one-half per cent.
interest. Not a very high charge, and made possible only because the
banker lends his credit and not his cash.

For purposes of illustration, the financing of the import of silk from
China was chosen because the operation embodied perhaps more points of
interest in connection with commercial credit business than any other
one operation. Commercial credit operations, however, are of great
variety and scope. They may involve, for instance, the import of
matting shipped from Japan on slow sailing ships and where the drafts
drawn run for six months or more, or they may involve the import of
dress goods from France, in which case the drafts are often at sight.
Furthermore, all credits are by no means issued on London. In the Far
East, where tea or shellac or silk is being exported to the United
States, London is known as the one great commercial and financial
center, but in the case of dress goods shipped from Marseilles or
Lyons, for instance, the credits would invariably stipulate that the
drafts be drawn in francs on Paris.

But whether the material imported be dress goods from France or tea
from China, the principle of the commercial credits under which the
goods are brought in remains identically the same. In every case there
is a buyer on this end who wants to get possession of the goods without
having to put up any money, and in every case there is a seller on the
other end who wants to receive payment as soon as he lets the
merchandise get out of his hands. The banker issuing the credit is
merely the intermediary, and the naming of some foreign point on which
the drafts are to be drawn is merely incidental to the conduct of the
operation.

One last point remains to be cleared up. The seller of the goods in the
silk-importing operation described gets actual money for the goods as
soon as he ships them--where does this actual money come from? In the
last analysis,