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878. To Find the Proceeds of Commercial Paper Drawn at Sight.

EXAMPLE.—Barnum & Co., of St. Paul, drew a sight draft for $1400 on Martin & Cole, 415 High St., Boston, on account of an invoice of hides shipped them, valued at $3000, as per B. of L. attached to draft. They sold the draft at a bank at 1% discount. What were the proceeds?

EXPLANATION.-As the draft is at sight, no time is conOPERATION.

sidered, and as the B. of L., valued at $3000 is attached to Face of draft = $1400

the draft, that, together with the indorsement of Barnum Dis. = 3% of $1400 =

& Co , is a sufficient guarantee to the bank for the paper. Proceeds = $1393

The discount is 3% of $1400 or $7, which subtracted from the face of the draft leaves $1393, the proceeds.

Rule.-1. Multiply the face of the draft by the rate per cent. of discount, the product will be the discount. Subtract the discount from the face of the draft, the result will be the proceeds. Or,

2. Multiply the face of the draft by 100%, minus the rate of discount.

Commercial paper is generally bought and sold at a discount, the rate depending somewhat upon the cost of transmitting the money from the place where the paper is purchased to the place on which it is drawn, and the condition of the money market in the former place.

879. To Find the proceeds of Commercial Paper Drawn on Time.

EXAMPLE.—A commission merchant of Charleston, S. C., bought a 90-day commercial draft for $800 on a Boston firm at 1% discount. If money be worth 6%, what did the draft cost him?


count on $1.00 for 93 days is $.0155 Bank dis. on $1.00 for 93 ds. = $.0155 and the commercial discount on Commercial dis. on $1.00 = $.005

$1.00 at 1% is $.005, the total dis

count on $1 00 is $.0205, and the Total dis. on $1.00 = $.0205

proceeds are $1.00-$.0205=$.9795. Proceeds of $1.00 = $1.00 – $.0205 $.9795

Since each $1.00 of the draft cost $800 draft costs 800 x $.9795 = $783.60 $.9795, the face of the draft will

cost 800 x $.9795 = $783.60.

Rule.-Find the cost of $1.00 by deducting the bank discount for the time and the commercial discount at the given rate. Multiply the cost of $1.00 by the face of the draft, the product will represent the cost of the draft.


880. 1. A grocer at Kingsboro, Pa., had a debt of $38.17, due in New York, which he paid by U. S. money order. Find the cost of the order.

2. The proceeds of a 15-day draft, which was sold at 2% discount, are $1943.44. What was the face of the draft, interest 6%?

3. Find the cost of a bank draft for $2580 on Third National Bank of New York, at the rate of 10 cents exchange for each $100.

4. What is the face of a time draft which can be bought for $313.14, if payable 24 days after sight, discount 3%, interest 5%?

5. Gates & Son, of Meniphis, drew a sight draft on Perrin & Boon, of Portland, Me., for $8750.85, which they sold at the Cotton Exchange Bank at 3% discount. How much were the proceeds?

6. I drew a 60-day draft on one of my customers and sold it to a broker at 3% discount, receiving $1354.18 as proceeds. What was the face of the draft, interest 6%?

7. Jno. W. Williams, of Middlesex, Mass., remitted Janis Bros. & Co., of Milwaukee, $1750 by draft on New York, exchange 15 cents per each $100; Martin & Co., of Allentown, Pa., by American Express money order, $89.75; and Theodore Emens, $28.50, by P. 0. money order. Find the total cost of exchange.

8. An Atlanta broker bought, at % discount, a 90-day (after date) draft on a Nashville merchant, 4 days after the draft was drawn, and gave his check for $660.17 in payment. Wbat was the face of the draft, interest 7%?

9. L. C. Thompson, of St. Louis, bought of Glenn & Garson a 60-day draft for $3800 on Leroy & Co., of Boston, at % discount and less 6% interest for the time to run. He sent the draft to a Boston broker who sold it at 3% discount and less 6% interest for 54 days. If the broker's commission was š%, what amount did he remit Thompson and what did Thompson make by the transaction?

10. A wholesale grocer owed for an invoice of $5425.40, purchased in New York, subject to a discount of 6% if paid within 10 days. Within the required time he discounted the bill and remitted for balance as follows: A sight draft which he bought of E. M. Brooks on Gunn & Baker for $4000, at 1% discount, and a bank draft for remainder, the exchange being 10 cents for each $100. How much was required to settle the bill, and how much was gained by discounting it?


881. Foreign Exchange is the name given to drafts or bills of exchange drawn in one country and payable in another.

Foreign bills of exchange are usually drawn in the moneys of account of the countries in which they are payable. Thus, drafts on England, Ireland, and Scotland are drawn in pounds, shillings, and pence; on France, Switzerland, and Belgium, in francs; on Germany, in marks; on Holland, in guilders.

Foreign bills of exchange are usually drawn in duplicate or triplicate of the same tenor and date, one of which being paid the others are void. Formerly it was the practice to send the different bills of a set of foreign exchange by different routes or vessels, to guard against loss or accident. The present practice, lowever, especially between Europe and America, where the mail service is both rapid and sure, is to send only the original bill and retain the others of the set.

Foreign bills of exchange are sometimes used as a means of collecting debts due in foreign countries. The method employed is similar to that used in collecting debts by means of domestic bills. That is, the drawer leaves the bill with his local banker, who forwards it to a correspondent in the place where the drawee resides, by whom it is collected, the drawee paying the equivalent of the face of the bill in local current funds. The correspondent then remits the proceeds of the bill in funds current in the place where the draft was drawn, and when received by the local banker he pays or credits the drawer the face of the bill, less the charges for collecting the same.


Exchange for £100.

NEW YORK, Nov. 2, 1894.


Thirty days after sight of this First of Exchange.

(Second and Third of the same tenor and date unpaid),
Pay to the order of Messrs. E. P. Reed & Co..
One Hundred Pounds Sterling

Value received, and charge the same to account of

No. 1305.



Exchange for £100.

NEW YORK, Nov. 2, 1894.
Thirty days after Sight of this Second of Exchange

(First and Third of the same tenor and date unpaid),
Pay to the order of Messrs. E. P. Reed & Co.....
One Hundred Pounds Sterling

Value received, and charge the same to account of

No. 1305.


Exchange for £100.

NEW YORK, Nov, 2, 1894.
Thirty days after sight of this Third of Exchange.

(First and Second of the same tenor and date unpaid),
Pay to the order of Messrs. E. P. Reed & Co.
One Hundred Pounds Sterling

Value received, and charge the same to account of




No. 1305.


882. The Par of Exchange is the established value or equivalent of the standard unit of money of one country, expressed in the standard unit of money of another country. It is of two kinds, intrinsic and commercial.

The intrinsic par value refers to bullion value. Thus, the pound sterling of Great Britain. contains 113 grains of pure gold, and the dollar of the United States contains 23.22 grains pure gold. Since 113 grains are 4.8665 times 23.22 grains, the dollar is worth 100 cents, and the pound is worth 486.65 cents.

The commercial par value refers to the value of the coin or currency of one country compared with that of another country, as determined by its market value, or by the requirements of trade or commerce.

The following quotations of the foreign moneys of account are used as the basis for comparisons in the United States: Great Britain, £1 = $4.8665; France, 1 Franc = $.193; German Empire, 1 Mark = $.238; Spain, 1 Peseta $.193; Italy, 1 Lira $.193; Mexico, 1 Dollar = $.79; Brazil, 1 Milreis = $.546; Cuba, 1 Peso = $.932; Hayti, 1 Gourde $.965.

Computations in the following examples will depend upon the quotations given in each.

883. The Commercial Rate of Exchange is the market value in one country of the drafts on another.

Quotations of foreign exchange are given by means of equivalents, no reference being made to the par value.

The commercial par of exchange cannot be greater or less than the intrinsic par to a point beyond the transportation charges and insurance of shipping coin or bullion from one country to the other. When the cost of exchange is greater than the intrinsic value of the coin represented by its face, to a point beyond the cost of transmitting such coin to that country, gold can be exported at a profit; when less than its intrinsic value, beyond the cost of shipment and insurance, gold can be imported at a profit.

American exchange on Great Britain (sterling exchange) is quoted by giving the exchange value of £1 in dollars and cents; on France, Belgium, and Switzerland by giving the exchange value of $1 in francs and centimes; on Holland by giving the exchange value of one guilder in cents; on Germany by giving the exchange value of four reichmarks in cents.

884. Documentary Exchange is a bill drawn by a shipper upon his consignee against merchandise shipped, accompanied by the letter of hypothecation, the bill of lading endorsed to order of payee, and the insurance certificates covering the property against which the bill is drawn.

885. Cable Transfer.-Within a few years the practice has arisen of transferring money to foreign countries by telegraph, or, as it is termed, “cable transfer."

By cable transfer a merchant who desires to ship wheat to London can complete the transaction in a few hours. He can ship the wheat, telegraph the fact to the consignee at London, obtain particulars concerning the conditions of the market, and, if he thinks best, have the wheat sold at once, “to arrive," and to remit the proceeds through a London banker. A bill does not appear at all in the transaction. The amount of business done in this manner Las materially reduced the volume of bills in some places. In the eastern trade with London, in which competition is exceedingly keen and the margin of profit consequently small, the telegraphic transfer system has been in use for several years. The amount of cable transfer between this country and European countries is constantly increasing

886. A Letter of Credit is a circular letter issued by a banking house to a person who desires to travel aoroad. The letter is usually addressed to the foreign correspondents of the bank issuing it, requesting them to furnish the traveler suck funds as he may require up to the aggregate amount specified in the letter.

When the traveler desires funds he goes to the correspondent in the city which he is then visiting and draws a draft for the amount on the correspondent mentioned in the body of the letter of credit. The draft is signed in the presence of the local correspondent, who carefully compares the signature with the one on the letter, and if found to agree, the draft is cashed, and the amount inscribed on the back of the letter. The last draft drawn is attached to the letter itself.

The difference between a bill of exchange and a letter of credit is that the former is payable at a certain designated place, at a specified time and in one amount, while the latter is payable at several places, at different times and in variable amounts.

887. Travelers Cheques are a substitute for letters of credit and bills of exchange. They are similar in form to bank bills. They are issued for fixed printed amounts, with the equivalent of each denomination in the money of the principal European countries, and are payable to order, after being signed and countersigned by the prrchaser or holder.

Travelers Cheques are cashed, without discount or commission, by an extended list of banks and bankers, and are received in settlement of hotel bills by the principal hotels in Europe.

Following is the form of Travelers Check issued by the American Express Company:

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Established 1841.

CAPITAL, $19,000,000.

London Bankers :
National Provincial Bank of England.

Paris Bankers : Credit Lyonnais.
No Cheque issued until its full value
has been paid in. Payment is assured
however long checks may remain out-

CHEQI ES are issued for $10. $20, $50 and $100 each or foreign equivalents.

This CHEQUE will be cashed by any of the 8000 agencies of the Company in United States or Canada, and in Europe at the Company's agencies, 35 Mi?k St., near Cheapside, London, E.C. ; 13 Water St., Liverpool : 4 Rue Scribe, Paris; 117 Langenstrasse, Bremen.

By Credit Lyonnais, Paris, Havre, Lyons, Nice, Brussels, Madrid, Geneva, Constantinople, Smyrna. Alexandria, Cairo and St. Petersburg. Munster & Leinster Bank, Cork and Dublin ; Northern Banking Co. and Ulster Bank, Bel. fast. National Bank of Scotland, Royal Bank of Scotland, and British Linen Co. Bank of Edinburg and Glasgow ; Dres. dener Bank, Berlin and Dresden : Bank fur Handel' & Industrie, Frankfurt, A. M., Bayerische Vereins Bank, Munich ; Anglo-Austrian Bank, Vienna ; Maguay, Hooker & Co., Rome, Florence, Leghorn and Pisa; Hone & Co., Amsterdam ; Landmandsbanken. Copenhagen ; T. J. Heftye & Sons, Christiania: Kredit Artiebolaget, Stockholm, and other Banks, Bankers, Hotels, etc, as per list.

In Austria, Russia, Spain, Portugal, etc., Cheques are paid at the current rate of exchange.

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To provide the necessary security in case cheques are lost and a simple means of identifica. tion, the intended user must at once place his or her signature in the upper left hand corner of each check under heading “When countersigned below with this signature,” leaving the other spaces blank until the necessity arises for making use of same. This will prevent the use of the cheque by any other than the person whose signature is so written.

When the occasion arrives to obtain funds at a bank, or to pay hotel or other bills or accounts, the user fills out the check to the order of the party to whom payable, and places his or her signature in the lower space thereon under heading “Countersigned” (see signature above), thereby completing the issuance and insuring the identification of the rightful owner, as the two signatures must agree. No identification is required.

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