In international trade, goods are exchanged for goods, indirectly generally, and are not paid for in coin or bullion in each case. This is shown by the fact that although the imports into the United Kingdom last year amounted to £451,238,683, and the exports to £294,183,680, leaving a balance of £157,055,003 apparently due, our exports of specie only exceeded the imports of specie by £749,000. The reason for this is explained in a previous chapter, under the heading of "the balance of trade."

Rates of Exchange. The "rate of exchange" is the price given in one country for the money of another country-thus, in the example given above, one rupee is the price which the bank pays in Bombay for 1s. 4 d. payable in London.

These rates are regulated by the laws of supply and demand, which in turn are influenced by the balance of trade between the two countries, but one of the principal factors in determining the rate of exchange is the cost of remitting specie the "specie point," as it is termed. The rate of exchange rarely rises above or falls below the "specie point "—it is obvious that if a merchant could obtain a much better result by shipping specie he would adopt that course (inconvenient though it be) in preference to buying bills. The cost of transmitting specie ranges from 4 to 10 per mille according to distance, &c.

The following are the standards for specie points of the principal gold exchanges, as given in the Economist:

25.324 per mille* for us. 20.52=5 per mille for us.

25.221 = Par.

20.43

Par.

4.867 Par.

25 124 per mille agst. us. 20-33=5per mille agst.us. | 4.8278 per mille agst. us

If in London the rate for bills on Paris were to fall to 25.12, it would be cheaper to send gold instead of bills; and if in Paris the rate for bills on London were to rise to 25.33, gold would likewise be shipped as the cheaper mode of remittance. (The term "bills " in this paragraph refers to "short" bills and cheques.)

* Per mille, of course, means per thousand.

Mint par of exchange.-In order to determine the rate of exchange in the first instance, when dealing with a foreign country whose currency is on a gold basis, we in England have to compare the weight of pure gold in a sovereign with the weight of pure gold in the coins of that foreign country, as calculated on data furnished by the different mints. The rate thus ascertained is called the mint par of exchange; thus, taking into consideration the weight and fineness of gold in a sovereign and in a 20-franc piece respectively, we find that the value of the sovereign reckoned in French money is 25 francs 22 centimes, therefore when exchange between London and Paris is quoted 25 francs 22 centimes, it is said to be at par.

In order to maintain exchange between two countries at par it would be necessary that the bills and cheques offered for sale should be nearly equal in value to the requirements of purchasers; in other words, that the demand should nearly equal the supply. This is seldom the case; there is generally a balance on one side or the other, and the excess of the supply as compared with the demand (or vice versa) causes the rates to fluctuate more or less.

The nominal par of exchange between two countries, one having a gold standard and the other a silver standard, is based on the supposition that the ratio of the value of silver to gold is as 15 to 1 (i.e., 151 parts of silver to 1 of gold), but the current rates of exchange are generally based on the actual market value of the weight of silver contained in the standard coins of the silver-using country. In India the value of the rupee has been artificially raised to 1s. 4d., owing to the Indian mints having ceased to coin silver for the public, the coinage now being for the Indian Government alone. The coins are issued to the public on a gold basis, viz., 1s. 4d. to the rupee. The rupee has thus become a "token coin its intrinsic value to-day being about 10d. only.

The "Mint par of exchange" is sometimes called the Nominal Exchange, as distinguished from the "commercial par" or Real Exchange. All these terms are, however, used chiefly by professors of political economy-they are rarely, if ever, heard in actual business. When operating in exchange a merchant does not trouble to inquire whether exchange is above or below par, all he is concerned with is the actual rate of exchange for the day, and whether it is likely to go higher or lower.

The Moneys of Account of the principal countries, i.e., the moneys in which accounts are kept and in which the rates of exchange are expressed, and the standards of value of each country are given in the following table.

STANDARD OF VALUE AND MONEYS OF ACCOUNT
OF THE PRINCIPAL COUNTRIES.

The franc is the current coin and the coin of accounts of France, Belgium, and Switzerland, and, under other names, of Italy, Greece, Spain, Servia, Bulgaria, and Roumania. The first five countries, viz., France, Belgium, Switzerland, Italy, and Greece, constitute what is known as the Latin Monetary Union. Their coins are alike in weight and fineness, although differing somewhat in name. Spain, Servia, Bulgaria, and Roumania have adopted the same system of coins, although they have not joined the Union. The Mexican dollar is the current coin in the Straits Settlements and adjacent countries. A British dollar of the same weight and fineness as the Mexican is also current there.

Course of Exchange.-In England, foreign bills of exchange and cheques are bought and sold, and the rates of exchange are fixed, at the Royal Exchange, London, the chief "market days" being Tuesday and Thursday in each week. The sales are effected through bill brokers, and a statement of the rates paid (which might be termed a "Price List of Bills") is published in the newspapers under the heading of the "Course of Exchange," which is merely another term for "Rates of Exchange." The following example (giving the rates for bills payable at the places named) is extracted from the Economist :

LONDON COURSE OF EXCHANGE.

It is obvious that in exchange operations between two countries the money of one country must be taken as a fixed quantity or basis, the money of the other country being variable. Thus in England £1 is taken as the fixed quantity or unit for exchange with France, Belgium, Switzerland, Italy, Greece, Holland, Denmark, Norway, Sweden, Germany, Austria, the United States, and Canada; but for exchange purposes with other countries, for example, Russia, Spain, Portugal, South America, India, and the East generally, the money of the foreign country is taken as 'fixed, and is quoted in pence.

In order to make the preceding table of the "Course of Exchange" quite intelligible to the uninitiated it would have to be put in the following form (taking the first column of rates) :—

It may be taken as a general rule that when the rate of exchange is quoted in decimals, the £ sterling is the fixed unit of exchange, and that in other cases the rate represents the equivalent (in pence) of the standard coin of the country concerned. Thus, in the table on the preceding page, the Paris rate is quoted 25-25, meaning that £1 is equal to Fcs.25.25, whilst the Libson rate is quoted 287, meaning that one milreis is equal to 287 pence. Exchange with Spain is generally quoted per piastre or dollar, a coin equal to five pesetas.