d are
respectively par of exchange plus or minus the cost of moving the
actual metal. These points vary with means of transportation and
communication. The par of exchange between New York and London being
nearly $4.866 and the cost of expressing and insuring a gold pound
between New York and London being approximately $.02,[9] the shipping
point for the export of gold from New York is $4.886 and for the
import of gold to New York is $4.846. At these upper and lower limits,
there is a motive for shipping gold as a commodity.

When large sales have been made to Europe and credits are accumulating
in New York and the importation of gold is imminent or already begun,
the claims are bought by bankers in New York at less than par. At such
a time one needing to remit a sum to London can buy exchange for less
than par, for every such draft remitted reduces London's indebtedness
and, by so much, the need of shipping gold to this country. As a
rule then, accumulating credits here mean a low rate of exchange,
accumulating debits a high rate of exchange from this to the foreign
country.

These are the merest rudiments of the subject. The many problems
arising, such as the adjustment of foreign credits to changing needs,
and such as arbitrage (the readjustment of the rates of exchange
prevailing among different financial centers) make foreign exchange
both a complex science and a difficult art.

Sec. 10. #International monetary balance and price-levels.# The balance
of all accounts for or against a country (including new loans, current
interest, and repayments) must thus eventually be settled in money.
This cannot fail to affect the general level of prices in both
countries, tho this is brought about often only in indirect and
gradual ways. The flow of money out of a country causes the loan
market of a country to tighten (interest and discount rates to rise)
in proportion as the reserves of the banks are reduced. Then "general
prices" begin to fall.[10] When prices fall, imports decline, as the
country is not so good a place in which to sell: when prices rise,
imports increase, as it is a better place in which to sell. The
opposite effect is produced on exports, and thus in a short time the
national credits and debits are again brought into equilibrium. A
slight movement of money in either direction is enough to influence
prices and set in motion forces to counteract a further flow of
money. Decade after decade the circulating