International Finance eBook

This eBook from the Gutenberg Project consists of approximately 125 pages of information about International Finance.

International Finance eBook

This eBook from the Gutenberg Project consists of approximately 125 pages of information about International Finance.
on which it is drawn, and then sells it to a bill broker at the market rate of discount.  If the bill is due three months after sight, and is for L2000, and the market rate of discount is 4 per cent. for three months’ bills, the present value of the bill is obviously L1980.  The bill broker, either at once or later, probably sells the bill to a bank, which holds it as an investment until its due date, by which time the importer having sold the wheat at a profit, pays the money required to meet the bill to his banker and the transaction is closed.  Thus by means of the bill the exporter has received immediate payment for his wheat, the importing merchant has been supplied with credit for three months in which to bring home his profit, and the bank which bought the bill has provided itself with an investment such as bankers love, because it has to be met within a short period by a house of first-rate standing.

All this elaborate, but easily working machinery has grown up for the service of commerce.  It is true that bills of exchange are often drawn by moneylenders abroad on moneylenders in England merely in order to raise credit, that is to say, to borrow money by means of the London discount market.  Sometimes these credits are used for merely speculative purposes, but in the great majority of cases they are wanted for the furtherance of production in the borrowing country.  The justification of the English accepting houses, and bill brokers, and banks (in so far as they engage in this business), is the fact that they are assisting trade, and could not live without trade, and that trade if deprived of their services would be gravely inconvenienced and could only resume its present activity by making a new machinery more or less on the same lines.  The bill whose imaginary history has been traced, came into being because the drawer had a claim on England through a trade transaction.  He was able to sell it to the South American bank only because the bank knew that many other people in Argentina would have to make payments to England and would come to it and ask it for drafts on London, which, by remitting this bill to be sold in London, it would be able to supply.  International finance is so often regarded as a machinery by which paper wealth is manufactured out of nothing, that it is very important to remember that all this paper wealth only acquires value by being ultimately based on something that is grown or made and wanted to keep people alive or comfortable, or at least happy in the belief that they have got something that they thought they wanted, or which habit or convention obliged them to possess.

FOOTNOTES: 

[Footnote 2:  All this imaginary picture is of events before the war.  At present Dr. Pillman, being a patriotic citizen, is saving much faster than before, and putting every pound that he can save into the hands of the British Government by subscribing to War Loans and buying Exchequer bonds.  He is too old to go and do medical work at the front, so he does the next best thing by cutting down his expenses and finding money for the war.]

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Project Gutenberg
International Finance from Project Gutenberg. Public domain.