realize that many dollars by selling a demand draft for L990 he
is even on the transaction.
No attempt will be made in this little book to present the tables by
which foreign exchange bankers figure out profit possibilities in
operations of this kind. The terms obtainable from foreign
correspondents vary so widely according to the standing and credit of
the house on this side and are governed by so many different influences
that a manager must work out each transaction he enters according to
the conditions by which he, particularly, and his operations are
governed. Such calculations, moreover, are all built up along the
general line of the scheme presented below:
Assume that the rate for demand bills is 4.85, that discount in
London is 3-1/2 per cent, and that the amount of the long bill
remitted for discount and credit of proceeds is L100.
_The various expenses are as follows:_
Commission charged by the banker in
London 1/40 per cent. $0.12
Discount, 93 days (3 days of grace)
at 3-1/2 per cent. 4.38
English Government bill stamp 1/20 per cent. 0.24
------
$4.74
Total charges on the ninety days' sight L100 bill amount to $4.74. On
one pound, therefore, the charge would be $.0474. From which it is
evident that each pound of a ninety-day bill, under the conditions
given, is worth $.0474 (=4.74 cents) less than each pound in a bankers'
demand bill. From which it is evident that if such a demand bill were
sold at 4.85 against a ninety-day bill bought at 4.8026 (found by
subtracting 4.74 cents from 485 cents) the remitting banker would come
out even in the transaction.
The foregoing has been introduced at the risk of confusing the lay
reader, on the idea that all the various calculations regarding the
drawing of "demand" against the remitting of long bills are founded on
the same general principle, and that where it is desired to go more
deeply into the matter the correct conditions can be substituted.
Discount, of course, varies from day to day, "payment" bills do not go
through the discount market at all, but are "rebated," the commissions
charged different bankers and by different bankers vary widely. Under
the circumstances the value of presenting a lot of hard-and-fast
calculations worked out unde
|