seen that a house anxious to sell a
large cable and not having the balance abroad to do it, might easily
provide its correspondent abroad with the funds by going out and buying
a cable itself.
But under ordinary circumstances foreign exchange dealers who engage in
the business of selling cables carry adequate balances on the other
side, balances which they keep replenishing by continuous remittances
of demand exchange. Which in itself constitutes an important form of
foreign exchange activity and an operation out of which many large
houses make a good deal of money.
All the parties involved being bankers there is little risk in business
of this kind; but, on the other hand, the margin of profit is small,
and in order to make any money out of it, it is necessary that very
large amounts of money be turned over. The average profit, for
instance, realized in the New York exchange market from straight sales
of cables against remittances of checks is fifteen points (15/100 of a
cent per pound sterling). That means that on every L10,000, the gross
profit would be $15.00. A daily turnover of L50,000, therefore, would
result in a gross profit of $75 a day.
It may seem strange that bankers should be willing to turn over so
large an amount of money for so small a profit, even where the risk has
been reduced to a minimum, but that is the case. Very often cables are
sold against balances which have been accumulated by remittance of all
sorts of bills other than demand, but there are several large American
institutions whose foreign exchange business consists principally of
the regulation selling of cables against remittances of demand bills.
By reason of their large deposits they are in a position to carry full
balances abroad, while in the course of their regular business a good
deal of sight exchange of high class comes across their counters. All
the necessary elements for doing the business being there, it only
remains for such an institution to employ a man capable of directing
the actual transactions. The risk is trifling, the advertisement is
world-wide, the accommodation of customers is being attended to, and
there is considerable actual money profit to be made. The business in
many respects is thus highly desirable.
3. _Selling "Demand" Bills Against Remittances of Long Bills_
If there is a stock operation in the conduct of a foreign exchange
business it is the selling by bankers of their demand bills of exchang
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